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Originally Posted by MRM
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An example of underpaying rates could be something like buying insurance based on local travel for non-hazardous cargo only and paying lower premiums because of it. But when te company gets a new contract for hauling hazmat coast to coast, forgetting to update the policy. In this case, the insurer is probably on the hook for any insurance claims, and their only recourse after an accident would be to cancel the account, but they'd still have to pay the risk. Rate fraud is the number one fraud loss for commercial insurers, greater even than pilfering and arson.
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My experience in insurance claims is quite different from this. If they deem that appropriate coverage was not in effect, or that there was an error or misrepresentation in the policy application, their first recourse is to simply deny the claim. The next tactic is to say that the policy was void due to misrepresentation and have no obligation other than to refund your premiums. It is then up to you to appeal and possibly go to court to recover. Insurance companies all have batteries of legal advisors and are usually quite content to find a way to deny a claim.
One example:
An associate of mine (a dentist) accidentally sawed off his right thumb on a table saw. It was reattached, but there was no movement nor sensation in it anymore... he couldn't grasp anything and had no fine motor control. This met the criteria for presumptive disability for own occupation for long term disability, for which he paid extra premiums. Yet the insurance company forced him to undergo neural graft surgery to attempt to get sensation back. When that failed they were forcing him to get a consultation with one of their doctors about amputating the numb thumb and transplanting one of his big toes onto his hand. All of these 'requests' were required or benefits would cease. They were simply trying to find a way to avoid paying out the LTD which would cost them 100's of thousands over my friends lifetime. He had to hire an attourney to argue for him that a toe transplant would not restore his career and the insurance company finally let him get on with his life.
So, in my experience, I see more examples of insurance NOT paying when they should than paying when they don't have to.