I want to address some misconceptions about advances under first party policies. By this, I mean a request for money made by an insured before the investigation is complete. While the circumstances of an insured’s loss often place the insured in a difficult financial situation, that situation does not alter the insurance contract. Therefore, let’s debunk some common misconceptions:
1. Generally speaking, most insurance policies do not require the insurance carrier to make an advance. Rather, the policies provide a timeframe for investigation and the insured’s compliance with conditions precedent to recovery. With only a couple of exceptions, there is no right to payment until the policyholder has complied with policy conditions.
2. Therefore, there is no “right” or “entitlement” to an advance.
3. Advance payments do not constitute an admission of liability. I direct your attention to T.C.A. § 56-7-131, a statute that seems to address both first and third party advance payments. To download a PDF copy, click here.
4. If a verdict results in favor of the insured, the advanced amount should reduce the amount awarded to the plaintiff. T.C.A. § 56-7-131.
5. Subsection (c) of T.C.A. § 56-7-131 specifically provides that any payments made by an insurance company shall be deemed to have been made pursuant to the limits of the policy, and shall be credited against the insurer’s obligation to the insured arising from the policy.
6. If an advance is made, and there is no coverage, the carrier should be entitled to recover that advance.
7. The statute also provides, as does most case law, that an advance does not toll any statute of limitations or contractual suit period.
Some carriers make advances, and others do not. Much depends upon the nature of the claim, the status of the investigation, and the situation of the insured/policyholder. When advances are made, there is no right to another advance.
I would just reinforce for all readers that the policy will set forth the requirements imposed upon an insured, and the quicker and more completely an insured complies, the quicker and ore completely the carrier can evaluate the claim.