Let’s say you make an insurance claim, and the insurance company denies the claim for reason A. You think they’re wrong, so you take them to court and argue reason A is invalid and the company should have paid your claim. In response, the insurance company admits reason A didn’t apply but now argues your claim should have been denied for reason B. Can they do that?
Like most insurance law questions, the answer is “it depends.”
An insurer can waive or give up a basis for denying a claim if it does so knowingly and voluntarily. For instance, if the adjuster tells the policyholder “I know the policy says you have to give us all the repair estimates by Tuesday, but don’t worry about it,” the insurer probably can’t deny your claim if you give them the estimates after Tuesday.
On the other hand, if the insurer doesn’t know about a basis for denying your claim despite a diligent investigation, the insurer probably hasn’t waived its right to assert that basis as a reason for denying your claim. For instance, if a boat insurance policy provides the boat will stay within Puget Sound and the insurer only learns the boat was damaged in the open ocean after the fact, despite diligently investigating, the insurer may not have waived its right to deny the claim because the boat left Puget Sound.
Similarly, the insurer’s failure to deny coverage on a specific basis may bar the insurer from asserting that basis retroactively if the insured relies on the insurer’s failure to deny the claim on that basis. In the boat insurance example above, if the insurer knew that the boat was being sailed outside Puget Sound in violation of the insurance policy, but continued to accept the insured’s premiums anyway, the insurer may not be able to deny coverage later if the boat is damaged. Or, if the insurer denies coverage for an erroneous reason, and the insured pays an insurance expert to investigate the claim and fight the insurance company in court, the insurer may not be able to switch its reason for denying coverage and assert a new reason for denying coverage in court.
Similarly, for insurance polices issued through an employer that are subject to ERISA, courts will often find that the insurer or plan administrator must list all its reasons for denying a claim up front. This is because federal regulations require full and fair review of ERISA claims, and specifically require the claim denial notice provide a detailed explanation of the reasons the claim was denied. If the insurer or administrator hides a reason for denying benefits, they often lose the right to rely on that reason in a lawsuit.