Florida Advocate Scrutinizes Insurer Use of Credit History to Deny Claims

Florida’s consumer advocate has called for an investigation into insurers using homeowners’ past credit history to deny claims and cancel policies even though the homeowners have paid premiums for years.

Florida Consumer Advocate Robin Westcott said some property insurers are using a policyholder’s past credit history to retroactively cancel a policy and deny a claim. That credit history may include bankruptcies, liens or home foreclosures that may have occurred years before they purchased a policy.

Westcott said the practice violates Florida law that only allows insurers to void a policy and cancel it from its inception and that is if the initial premium check is not backed by funds.

“I believe that the practice described to void coverage and/or deny claims for misstatements relative to credit history is an abusive practice that should be consider an unfair trade practice,” said Westcott in a letter to Insurance Commissioner Kevin McCarty.

Westcott’s said her office has received 10 complaints, although her letter cited only three cases, all involving Universal Property and Casualty Insurance Co. Her agency is unsure how widespread the practice is.

Universal did not respond to a request for comment.

According to Westcott, insurers may use credit reports to verify the information provided by consumers when they apply for coverage. Their underwriting criteria may also contain policy exclusions for bankruptcy, liens or foreclosures prior to applying for coverage.

However, she said, what is happening in these cases is that the policyholder purchases a policy and pays the premium and only after the policyholder submits a claim does the insurer run the insured’s credit history to see if the information provided on the original application is correct. If there is any inconsistency between the credit report and the policyholder’s application, the insurer then cancels the policy from the date it was purchased, leaving the consumer on the hook for any damage.

Westcott said that consumers should be required to give accurate information when applying for policies. However, she said, insurers have plenty of time to check the information when deciding whether to issue the policy and if they don’t they are being irresponsible for lulling policyholders into a false sense of security.

“The practice of ignoring readily available information to your potential advantage (collecting premium) and using it only when convenient (denying the claim) reeks of the same business practice we have seen recently for the use of the death rolls,” said Westcott.

She said policyholders who have seen their claims denied or policies canceled are left with few options. Since their coverage was void for misrepresentation, no private insurer or Citizens Property Insurance Corp. will accept their application. As a result, they may have to secure coverage through their mortgage holder at a high cost.

Topics Florida Carriers Claims