That's the risk the insured takes. If the event does cause the insured a financial loss, the insured files a claim and the insurer pays the insured for some or all of the loss. That's the risk the insurer takes. Insurance is highly regulated. Usually, a seller of insurance must be licensed by the state or states in which it does business.
Most states have a governmental agency specifically devoted to regulating the business of insurance.
These agencies also investigate complaints against insurance companies or insurance agents. State and federal laws limit and interpret insurance agreements, as do decisions of each state's courts. There are some insurance concepts that all states have in common. Bad faith is an allegation that an insurance company has intentionally failed to abide by the agreement with its insured. Bad faith is more than a disagreement about what the insurance agreement requires.