What Is Negligence in Insurance?

Definition & Examples of Negligence in Insurance

Model house damaged by fallen tree, close-up
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Negligence is a failure to act in a way that a reasonable person would when faced with the same situation and circumstances. In insurance, the policyholder or someone else in the household might be negligent if the failure to act leads to damages.

How negligence is handled in insurance situations, and claims, is often misunderstood. Learn more about negligence in insurance and consider some examples so you can avoid dealing with any negligence issues in the future.

What Is Negligence in Insurance?

Negligence in insurance is a failure to act in a reasonable way when faced with a certain situation or circumstance, leading to damage. Negligence pertains to all types of insurance: 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.

How Negligence in Insurance Works

If water is coming into your home due to a burst pipe, your insurance policy most likely requires that you do something to try to prevent further damage. That's what a reasonable person would do. If you decide not to for some reason, it could be considered negligence on your part. The initial damage might be covered, but excessive damage, because you didn't act, may not be paid—at least unless there were extenuating circumstances.

Maybe you weren't at home at the time 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.

Sometimes things happen by accident. For example, your child may take your drone without your knowledge and fly it into someone else's property—or worse, injure someone. You may be considered negligent not to have prevented your child from doing this, but you may have coverage for drone accidents on your policy.

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

Does Insurance Cover Negligence?

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 cases of liability, the insurance company will typically pay for your legal defense, but it may 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.

Why Your Insurance Might Later Cancel Your Policy

The insurance company has an obligation to pay certain 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 and they may cancel your policy.

It doesn't necessarily mean you're in the clear just because your insurance company pays a claim. Insurers are in the business of managing risks, and they try to choose and retain policyholders who will minimize risk. When someone is clearly negligent or has repeated incidents of claims that could have been prevented, an insurance underwriter might decide to cancel the policy.

Then, you as the policyholder might be forced to go with high-risk insurance because no one else will insure you. 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.

Examples of Insurance Negligence Cases

Jennifer has her trees cut back and maintained every year, but one of her trees fell on her neighbor's home during a storm. It caused extensive damage. The neighbor accused Jennifer of negligence, but she had documents to prove that she had taken reasonable measures to maintain her property. Although it was her tree that fell, it didn't happen due to her negligence. 

John's mother passed away, and John inherited his mother's house. The home sat vacant while John settled the estate, a time-consuming process. He got a vacancy permit and promised the insurance company that he would visit the house every four days until he could move in. He also stated that he would have someone maintain the property. However, John was so busy and distracted by his loss that he never found someone to look after the house as he had promised. He didn't call the insurance company to let them know. Five weeks later, John went to the home and discovered major damage. His claim was denied due to his negligence and not advising the company when the situation changed from their original agreement.

Nancy backed out of her driveway without looking up and down her street first because there was never any traffic there. She hit another car. The accident was Nancy's fault because she was negligent. However, the insurance company would still pay the resulting claims because she carried full coverage—liability coverage to address her actions and collision coverage to deal with the damage to her car.

Key Takeaways

  • Negligence in insurance is a failure to act in a reasonable way when faced with a certain situation or circumstance, leading to 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 because of your negligence.
  • Your negligence may cause your insurance company to review your insurability with them, 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.