What Is Insurance Negligence?

Calling for repairs while holding jar to catch water
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DEFINITION

Negligence is a failure to act in a way that a reasonable person would when faced with the same situation and circumstances. In insurance, insurance negligence is when a policyholder or someone else in the household might be negligent if the failure to act leads to damages.

Definition and Examples of Insurance Negligence

Insurance negligence is a failure to act reasonably when faced with a situation or circumstance that leads to damages. Negligence can pertain to all types of insurance, including home, life, health, and auto.

Note

When it comes to insurance negligence, the keyword is "reasonable." If you're ever in doubt, ask yourself what most people would do in your situation. Would they pick up those bricks falling off the house? Would they investigate a funny smell coming from the attic? If your answer is yes, do the same, and negligence should not be an issue.

For example, imagine storms blow through your area all the time. Over the last few months, maybe you have found wet spots in your ceiling after intense storms. You don't repair it or report it to your insurance company, and eventually, you start getting streams of water running into your house.

You finally report it, but the insurance company decides that you were negligent because you didn't report and repair the leak the first time, and you allowed it to cause further damage to your home. Your insurance agent tells you that your policy doesn't cover the damage, and you have to pay for the repairs out of pocket.

How Insurance Negligence Works

Insurance negligence is based on what a reasonable person would do. If you decide not to report issues or damages for some reason, it could be considered negligence on your part. Your insurance company has several choices after determining negligence, so it is up to them how to proceed.

It might cover initial damages, but the damage caused because you didn't act may not be—unless circumstances were beyond your control.

Maybe you weren't at home when the pipe burst, or perhaps there was electrical wiring in the location where the water was coming in, so you couldn't safely approach it to take action. The insurance company wouldn't consider it negligent if you decided to wait for qualified help. Your insurance contract requires you to take reasonable measures.

Respect the terms of your contract and take reasonable measures to protect against further damage whenever possible, but don't put yourself in danger. 

Sometimes things happen by accident. For example, your child may take your drone without your knowledge and crash it into someone else's property or injure someone. You may be considered negligent by not taking action to prevent your child from commandeering the drone, but you may have coverage for drone accidents on your policy.

What It Means for Policyholders

Depending on the level of negligence and the type of damage, your insurance policy might still pay a claim if it occurs because of your negligence. In liability cases, the insurance company will typically pay for your legal defense, but it might not pay for subsequent damages if you lose. Negligence is a case-by-case assessment, so you should always do whatever seems reasonable to protect your property and that of others.

Your Insurance Premium Might Go Up

If you fail to report damages promptly to your insurance company and more damage is caused, the insurance company will likely increase your rates if they decide to continue your coverage.

It's best to report all damages to your insurance company. They may not cover it, but by doing so, you show them you're acting in good faith.

Your Policy Might Be Cancelled

The insurance company has an obligation to pay specific claims. Still, if they feel uncomfortable with your actions or feel that you have been negligent, they may take the opportunity to review your insurability with them after the fact—they may even cancel your policy.

Then, you might be forced to go with high-risk insurance because other insurance companies will be aware of the cancellation. It invariably means higher premiums, so it's better to be cautious than risk significant or repeated claims that you might have been able to avoid.

Key Takeaways

  • Insurance negligence is a failure to act reasonably when faced with repairs that could lead to more damage.
  • Depending on the level of negligence, the type of damage, and your insurance contract, your insurance company might still pay a claim even if it occurs due to negligence.
  • Negligence may cause your insurance company to review the risks of insuring you, and they may later cancel your policy.
  • When it comes to insurance negligence, the keyword is "reasonable." If you're ever in doubt, ask yourself what most people would do in your situation.