When should a policyholder be required to sign forms authorizing the insurance company to collect personal information about the insured such as financial records, banking statements, tax returns, etc.? Before any such request can be made, the insurance company's basis for doing so must be reasonable in nature. For example, requesting that type of information on every claim presented, whether suspicious or not, is not reasonable behavior. On the other hand, a claim for theft of a $50,000 stereo system made by a 20-year-old who works behind the counter at a fast food restaurant could reasonably lead an insurance company to investigate the claimant's financial ability to be able to purchase and own that type of property.
When presented with a broad and far reaching release allowing the insurance company to retrieve personal financial records, the recommended response is to:
1) Require the insurance company to make its request in writing and explain the specific basis and reasoning for the request, namely, explaining why the specific information sought would either support or detract from the legitimacy of the claim.
2) If you are satisfied that the insurance company is making a reasonable request under the circumstances, you should still insist that the insurance company limit the scope of the request to items that are truly relevant to the claim in question. For example, using the fast food restaurant worker as an example, asking the insured to produce some proof as to how the insured acquired the money to buy the expensive stereo (such as from an inheritance, a family trust, etc.) should not require the insured to allow access to unrelated information from mortgage companies, credit reporting agencies, or other sources of information which offer no real information as to the central issue of whether the insured actually had, at some relevant point in time, enough money to buy the items in question.
Therefore, consider asking the insurance company to work with you on agreeing to the types of financial records that would really be relevant to the particular inquiry at hand.
One particularly sensitive area is the request to produce tax returns. Once again, the only reasonable basis for requesting production of tax returns is if there would be expected to be information on the returns that is directly relevant to the claim at hand. As an example, has the insured shown a casualty loss on the insured's tax return that is consistent with the amount of the claim being presented to the insurance company? As with the case of a general request for a release of financial information, the insured only has to provide copies of those pages of the insured's tax return which are truly germane to the issue at hand.
The overall dilemma confronting the insured when any request for financial or personal information is made is to make sure that any denial of access to the information requested does not provide the insurance company with a justifiable basis for denying the claim based upon the insured's lack of cooperation. All insurance policies contain cooperation clauses which require the insured to cooperate with and assist the insurance company during the claim process. The issue, of course, is determining when the insurance company's requests for information are reasonable and when they are not. An insured violates the cooperation clause when an insured refuses to provide reasonable information that has been reasonably requested by the insurance company. By the same token, refusing to produce documents or information unreasonably requested by an insurance company is not a breach of the cooperation clause. When a dispute such as this arises, both sides are at risk because the ultimate arbiter as to whether the insurance company's request was reasonable or unreasonable later on down the road, namely, a judge, is not presently available to make a decision on reasonableness while the claim is pending.
From the insured's perspective, a failure to respond to an insurance company's reasonable request for information may well cause a totally legitimate claim to go unpaid. From the insurance company's perspective, denying a claim based upon what is subsequently determined to have been an unreasonable request of an insured may well amount to a finding of bad faith and subject the insurance company to significant damages far beyond the value of the claim itself.
The bottom line is that it all boils down to each side having to make a judgment call as to whether they are acting reasonably or unreasonably. Because of the stakes involved, an insured should make every effort to promptly respond to any request for documentation from the insurance company, providing what is reasonably appropriate and, where issues or disputes still exist, attempting to resolve the matter through negotiation or compromise as to what actually needs to be produced. If the information being sought is arguably reasonable and relevant, the insured is often better off to produce the information.
