Insurance Reference Panel Trap, New Normal?

The Massachusetts Insurance Reference Panel for home owner insurance policies was established to provide a fair and efficient alternative to the already backed-up court systems. The reference panel was created to ensure a quick yet just alternative to settle claim discrepancies between the insurer and insured. Lately, insurance company referees (as a proxy for insurance companies) have been proposing only insurance industry careerists as options for the third referee. They refuse to compromise with any of the insured’s choices. 

Insurance companies know that if both sides cannot agree on a third referee, Massachusetts law (M.G.L. c.175 § 100) requires the Division of Insurance to appoint a third referee. Anecdotally, the Division of Insurance appears to choose a third referee who also has a long career in the insurance industry, and they tend to have a bias in favor of the insurance companies.

Selection of the third-referee should be taken seriously since that person often renders the deciding vote and ‘controls’ the process.

Here is a summary of the Reference Panel process: 

• Under MGL 175 § 99, any homeowner or condominium owner who has made a claim for property damage or loss to their home or condo must take all disputes over the value of a loss to a Three-Person Reference Panel. 
• The deadline to sue your homeowners’ insurance company is two years from the date of loss. As assessed by the insurance company, home or condominium owners who want to dispute the value of a loss MUST move quickly to request a Reference Panel. 
• Although some Massachusetts courts have ruled that when a coverage dispute exists after the insurer simply denies coverage for a loss, a Reference Panel is still required. These courts have reasoned that denying coverage is similar to saying the claim’s value is zero.
• Once the Reference Panel is requested, the statute of limitations period pauses or is ‘tolled’. Although reference can toll the statute of limitations delaying the request for reference can defeat that and bar your right to sue in court (so do not wait until 30-60 days before the 2 year anniversary to request reference).  The insurer then has 10 days to submit 3 choices to the insured. Then the insured has 10 days to select 1 and submit 3 choices to the insurer. 
• When both the insurer and insured have chosen a referee, those 2 referees select a third. (M.G.L. c.175 § 100) The insurer and insured split the costs of all referees.

The issue and ineffectiveness of the Reference Panel process arise when the two selected referees disagree on a third referee. Under M.G.L. c. 175, § 100, the Division of Insurance will appoint a third referee if a third referee cannot be agreed upon. Thus, an individual from an insurance background will be selected. The appointee will be inherently biased to the insurance companies but will likely be a lot more costly than any prospective third referee.

So now, not only will the insured be at a disadvantage on the panel, but they also have to pay for the much more expensive option provided by the Division of Insurance. Insurance companies continue to abuse this government-sanctioned forum to the point that it has outweighed any original purpose for which it was created.

But what is the other option? If the insured fails to file a reference panel, they lose all rights to bring suit against the insurance companies. This leaves insureds the option to take whatever the insurance company has offered or dish out more time and money just to have a biased reference panel rule in the insurer’s favor. Somehow a statute-mandated system to fairly streamline insurance claim issues has turned into a system dominated by insurance industry careerists. 

Insurance companies abuse the reference panel requirement while reaping the benefits of splitting the cost regardless of whichever side wins. The insured may be better off accepting an initial offer from the insurance company. Insureds risk wasting time and money to complete the entire reference panel process. The likelihood of a negative outcome and receiving less money than initially offered by the insurer is higher than defeating the insurance company in a reference panel proceeding.

If you are experiencing a dispute with your insurance company over a loss to your property, please contact the experienced business lawyers at The Jacobs Law, L.L.C.