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Will my Homeowner's Insurance Get Cancelled after I File a Claim?

Barry Joseph of Forest Hills, New York had his homeowner’s insurance policy with State Farm cancelled. The company cited the fact that he had made too many claims in a short period. Barry made two small claims in the past two years: one for a ceiling fan that fell from the ceiling and one for a stolen bike. Joseph was not compensated by State Farm for either claim. To put it another way, Barry Joseph paid homeowner’s insurance premiums to State Farm for years, the company never paid him a dime to compensate him for his losses, and now his policy was cancelled. What is the possible reason for this? The New York Times reached out to State Farm for an explanation. Rachel Risinger, media contact for state farm responded, “Decisions to nonrenew are never made lightly because we absolutely value the relationships we have with our policyholders, and multiple factors are considered when making these decisions. Every policy has its own unique circumstance and is reviewed on a case-by-case basis.” That statement does not provide much of an explanation.

So… Why Might Your Insurance Policy Get Cancelled After Filing a Small Claim?

This situation is not uncommon; many people have dealt with a similar situation with State Farm, as well as other insurers. They have submitted a couple small claims, and then received a notification of nonrenewal. Basically, the reason for this is that according to insurance companies, people who submit insurance claims at a higher frequency (yes – two small claims in two years is considered frequent) are more likely to submit larger claims eventually. Therefore, Barry Joseph (and others in a similar situation) signaled to State Farm he is likely to file a major homeowner’s insurance claim at some point. Burr Daniel, an expert on insurance, explained that policyholders’ strategy should be to submit only substantial claims, as homeowner’s insurance is designed to protect from large loss, not say, a stolen bike. Burns said, “Homeowner’s insurance isn’t designed for small claims. It’s for the big stuff. You have to define what big is, of course. For some people that might be $5,000, for others $10,000 or more. But it’s not smart business to nitpick an insurance company with small claims. It’s not a maintenance contract. The insurance mechanism is designed to protect you from larger losses.”

Not only is it legal for insurance companies to drop policyholders after filing two small claims in two years, but companies can also drop policyholders before even filing a claim, based on future risk. For example, insurance companies have dropped people located in high-risk areas (i.e., flood, hurricane, etc.) based on future risk to their bottom line. There are no established criteria for what makes a person a potential liability for insurance companies. For some, its Barry Joseph’s situation, for others it can be even less. If you are dropped by your insurance company, the harsh reality is that finding a new policy can be difficult, as you may also look high-risk to other potential insurers.

Contact Goldstein & Hayes, P.C.

Georgia law requires insurance companies to act in good faith toward their insured. If this duty has been breached, we can help. The skilled attorneys at Goldstein & Hayes, P.C. are here to assist you if you have experienced bad faith practices by your insurance company. Call our Atlanta attorneys today for a free consultation.