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If you were the insured under the policy and were suspected of making the fraudulent claim, the first step would probably be that the insurer would issue a "reservation of rights". This means that the insurer is "reserving" its rights to later disclaim coverage pending a further investigation of the claim. This is a letter sent to the insured so stating, and is required because most states impose time limits on insurers to settle undisputed claims. Therefore, this is a way to ensure that all parties know that the claim is disputed, and therefore, that the "undisputed" time frame does not apply.

As part of the investigation of a suspected fraudulent claim, the insurer will probably also conduct an "examination under oath". The insured or other persons having an interest in getting the claim paid will be put under oath and asked questions that are material to whether or not, based upon the facts, the occurrence is covered by the policy.

After this is done, the insurer will make a determination, usually based upon consultation with its lawyers, whether there is a sufficient basis to deny coverage, or whether it should be paid or compromised. In making that determination, it will consider the chances of defeat in a lawsuit based upon a denial of coverage. If the insurer loses the coverage suit, not only will it be found liable for the claim, but in most states, it will also have to pay the claimant's attorney's fees. More importantly, it sets a precedent for the interpretation of that policy language.

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14y ago

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