It's what every policyholder dreads. When you finally need your insurance, you file a claim and it gets denied.

Or maybe the insurer just pays you a lot less than you think they should.

When you find yourself in that situation, what can you do? What are your options?

It's not uncommon to have an insurance company's initial settlement decision overturned in your favor, so it's worth going through the dispute process if you think you have a case. This article will cover the basics of how to dispute a claim settlement so you can get what you're owed.

Disputing Your Claim with Your Insurance Company

Before seeking outside representation, you will appeal to your insurance company directly. Here are the steps you'll have to go through.

Don’t Lose Your Cool

Your first instinct might be to call you up your insurance company, demand to speak to the claims adjuster, and really tear into them.

Don't.

Remember that these are people just like you, and they almost certainly have no animosity toward you. An unfair claim denial or unreasonably low settlement is often the result of a misunderstanding, miscommunication, or inadequate documentation of the damages (to make sure you don't miss anything in the first place, see How to File a Claim that Gets Paid Sooner).

These are all issues that can be cleared up, but berating someone at the insurance company won't get you anywhere. Be polite with anybody you deal with, and go into this with a positive attitude about the outcome of the dispute.

Document Everything

Maintain a record of all your communications. In fact, it is prudent to do this during the initial claims process, not just the dispute.

Make copies of any letter or document you send to the insurer or to any third party involved in the claim, such as an agent or adjuster. Record the date at which you sent and the date on which you received any letters or documents related to the claim. Keep a dedicated e-mail folder for any electronic communications between yourself and the insurer.

Immediately after speaking on the phone with someone, send an e-mail or letter to the person you spoke with that memorializes what was said and who said it. And don't be bashful about cc'ing or bcc'ing the conversation to any party who should be kept in the know.

Review the Documentation Supporting the Amount of Payment

If the insurer has denied your claim or paid less than the claimed amount, it should have sent you a written explanation detailing why. This document will likely refer to clauses in the insurance contract.

Carefully review the stated clauses in your contract, as well as any other clauses that might support your claim. You might not agree with the insurer’s interpretation, but it is important to understand the reasoning behind it.

Contact Your Agent or the Insurer’s Claims Department

The next step is to contact your broker or agent (see What Is an Insurance Broker? to find out what they can do for you). A good broker or agent will go to bat for you, work with you to understand why the claim has been denied or under-paid, and advise you on what you need to do to further document your claim.

You can also contact the insurance company's claims department and deal directly with them. Ask them if another adjuster can review your claim in case the first one has made a mistake. If the problem is insufficient evidence of loss, ask them if you can submit additional evidence and have the claim reviewed. If it's the case that, say, the photos you submitted didn't show as much damage as you claimed your property sustained, you can ask to take additional photos at new angles, from close up, or from farther back to give a better view of the loss.

The insurer likely has a specific process for disputing claims. Ask them to send you a written explanation of the process, as well as the deadline for submitting additional documentation. If the insurance company's written explanation of their denial of your claim is unclear to you, ask them to send a new letter further explaining the company's reasoning.

Be polite but assertive. If you need further explanation, insist that the insurer provide it. If you believe that another adjuster should review the claim, insist on either this or an explanation in writing of why the insurer will not do it. Document your position in writing to the insurer, and, as mentioned above, memorialize telephone conversations in writing. Follow the insurer’s procedure for disputing a claim and see what you get in return.

Going Beyond Your Insurer

When you dispute your claim but can't come to a satisfactory conclusion, there are still a few options available to you. Here are some of the professionals who can help you if you want to pursue the matter further.

Working with an Independent Adjuster

If the insurer does not budge after you've gone through the dispute process, consider getting an appraisal of your claim by an independent adjuster.

This will likely set you back a few hundred dollars. If the amount under dispute is small, this might not be worthwhile (frankly, even disputing your claim might not be worthwhile), but they can be a good resource for more substantial claims.

If an evaluation by an independent adjuster supports your claim, send a copy of the evaluation to the insurer. You will likely also want to call the insurer and insist on speaking to a claims manager to ask for a re-evaluation of your claim.

State Insurance Commissioner

Another recourse you have is your state's insurance commissioner.

If you choose to take your case to them, you will need to provide a detailed explanation of all that has passed between you and the insurer. They'll also require copies of all pertinent documents.

Before choosing to work with your insurance commissioner, understand that many of them are under-funded and overloaded with work. As a result, you might not always get the best outcome.

Mediation

Some insurance policies provide for mediation in the case of disputes. Mediation can be useful, but it has its limitations.

The first question you have to ask yourself is "Who pays?" If the policy provides the mediation, it will also provide payment, though it might only cover half the cost.

Be aware that mediation is non-binding, which means that either you or the insurer can reject the mediator's recommendations.

The representative from the insurance company will naturally have far more experience with the mediation process than you do, but that does not necessarily mean that the mediator will come down in their favor. Mediators are typically well aware of the differences in experience and will keep it in mind.

Filing a Lawsuit

The last step is to hire a lawyer who has experience in what is known as bad faith insurance litigation. "Bad faith" in this case means that the insurer has not lived up to its obligation to deal fairly and in good faith with you or your claim.

Law firms look primarily at two factors when deciding whether to take on such cases. One is the value of the case: if the case has high value, such as a claim that is worth at least mid-six figures, a law firm is much more likely to take it than a smaller case. The other is if the denial is especially egregious. They might even take on a relatively small claim in that situation.

Bad faith cases are expensive to litigate, so if you are arguing over 10,000 bucks to repair your home after a storm, you might be better off trying to settle short of litigation, unless the under-payment or denial has some egregious aspect to it.

Bad faith cases are taken on a contingency basis, meaning that the law firm takes a percentage of the recovery. Typically, they'll keep about one third, though this figure varies and is subject to contract, with costs, such as expert witnesses and court fees, taken off the top. The firm fully funds the litigation. This is to your advantage, since it costs you nothing to litigate, but it also means law firms won't just take on any case.

Get What You're Owed

Insurance companies have dispute processes in place to help you resolve any issues you have with your claim. If you still feel aggrieved after exhausting every avenue with the insurer, there are other options you can pursue to get paid.

If your claim is small, the expense and time involved in pursuing these options might not be worth your while, but if you have the funds and the patience, you can see your way through to getting what you're owed.