Fighting Undervalued Insurance Claims

Why Insurers Undervalue Claims

If your insurance company offered significantly less than your claim is worth, you are not imagining it. Undervaluing claims is a common practice, and understanding why it happens is the first step to fighting back.

The Business Reality

Insurance companies are businesses. Every dollar they pay in claims is a dollar less in profit. While most insurers do not deliberately cheat policyholders, their systems and processes often systematically undervalue claims:

• Adjuster incentives: Some companies reward adjusters for closing claims quickly and cheaply
• Software-driven estimates: Automated pricing tools often use outdated or regional pricing that does not reflect local costs
• Missed damage: Quick inspections may overlook hidden damage or consequential losses
• Depreciation abuse: Over-aggressive depreciation on ACV policies
• Scope disputes: Disagreement over what repairs are actually necessary

Common Undervaluation Tactics

• Using the cheapest possible materials in repair estimates
• Ignoring code upgrade requirements
• Excluding related damage from the scope
• Applying excessive depreciation
• Using pricing databases that do not reflect actual local contractor rates
• Denying coverage for items that are actually covered

Know What Your Claim Is Worth

Before you can fight an undervalued offer, you need to know what your claim should actually be worth. Here is how to establish the true value.

For Property Damage Claims

1. Get Your Own Repair Estimates
   Obtain 2-3 detailed repair estimates from licensed contractors. Make sure they inspect thoroughly for hidden damage and include code upgrades if required. Written estimates should itemize labor, materials, and all necessary work.
2. Document Everything
   Photograph all damage before any repairs begin. Keep damaged materials if possible. Document the timeline of the loss and all communications with your insurer.
3. Understand Your Coverage
   Review your policy to understand whether you have replacement cost or actual cash value coverage. Check for ordinance or law coverage for code upgrades. Know your coverage limits and sublimits.
4. Consider Hidden Damage
   Initial estimates often miss damage that becomes apparent during repairs. Water damage may have affected areas behind walls. Fire damage may have caused smoke infiltration throughout the structure.

For Personal Property Claims

• Research current replacement costs for each item (not what you paid originally)
• Document comparable items from retailers with current prices
• Get appraisals for high-value items
• Create detailed inventories with descriptions, ages, and conditions

How to Challenge a Lowball Offer

You do not have to accept the first offer. Here is a strategic approach to challenging undervalued settlements.

Step 1: Do Not Sign a Release

Before you challenge the offer, make sure you have not signed anything that releases the insurer from additional payments. If they ask you to sign a "proof of loss" or "release," read it carefully. A proof of loss is generally fine, but a release that says you accept the payment as full settlement will limit your options.

Step 2: Respond in Writing

Write a letter rejecting the offer and explaining why it is inadequate. Be specific about:

• Items or damage not included in their estimate
• Price differences between their estimate and your contractor quotes
• Depreciation amounts you dispute
• Coverage they denied that you believe applies

Step 3: Provide Supporting Documentation

Include your contractor estimates, photos, receipts, and any other evidence that supports your position. The more documentation you have, the stronger your case.

Step 4: Request a Re-Inspection

Ask the insurer to send another adjuster to re-inspect the damage. If your contractor is willing, have them present during the inspection to point out damage and explain necessary repairs.

Step 5: Escalate Within the Company

If the adjuster will not budge, ask to speak with a supervisor or manager. Sometimes a higher-level review results in a better offer.

Accepting Partial Payment

You may need funds immediately but still want to dispute the total amount. Here is how to handle partial payments.

If you need to accept partial payment while continuing to dispute the total, write "Accepted as partial payment only. Rights reserved." on the back of the check when endorsing it. Better yet, get written confirmation from the insurer that accepting the payment does not waive your right to dispute.

The Appraisal Process

Most property insurance policies include an appraisal clause that can be invoked when you and your insurer disagree about the amount of a loss (not coverage, just value).

How Appraisal Works

1. Either party demands appraisal in writing
2. Each party selects their own appraiser
3. The two appraisers select a neutral umpire
4. The appraisers try to agree on the amount of loss
5. If they cannot agree, the umpire decides
6. Agreement by any two (your appraiser + their appraiser, or either appraiser + umpire) is binding

Advantages of Appraisal

• Generally faster than litigation
• Less expensive than going to court
• Results are typically binding
• Focused solely on value, not coverage disputes

Disadvantages of Appraisal

• You must pay for your own appraiser and half of the umpire's fee
• Does not address coverage disputes or bad faith
• Cannot recover attorney fees or damages beyond the claim value

See our detailed appraisal guide for more information.

When to Hire a Public Adjuster

A public adjuster is a licensed professional who represents policyholders (not insurance companies) in negotiating claims. Consider hiring one if:

• Your claim is large (typically $10,000+)
• The damage is complex or extensive
• You have been offered significantly less than you believe is fair
• You do not have time to handle the claim yourself
• The insurer is being difficult or unresponsive

Public adjusters typically charge 5-15% of your settlement. While this is a significant cost, studies suggest claims handled by public adjusters often result in higher payouts, even after their fee.

When Undervaluation Becomes Bad Faith

An unreasonably low offer may cross the line from mere undervaluation to insurance bad faith. Signs that may indicate bad faith include:

• Offering less than half of what comparable claims receive
• Ignoring your documentation and contractor estimates without explanation
• Using obviously inadequate investigation methods
• Pressuring you to accept quickly
• Misrepresenting policy language to reduce payment
• Refusing to explain how they calculated the offer

Bad faith claims can result in damages beyond your policy limits, including emotional distress, attorney fees, and potentially punitive damages. If you believe your insurer is acting in bad faith, consult with an attorney.