Automobile Accident Lawsuit Between Two Insurance Carriers*

Case Summary:

This is a review of an automobile accident lawsuit where the Plaintiff was an insurance carrier trying to recover damages from an accident caused by a driver the Defendant insured. The Defendant alleged that the accident in question was staged by its insured, and the Defendant had refused to pay out any compensation related to the incident.

Statement of Facts...

In 2007, drivers Alfred Kingston and Donald Merkel were involved in a collision at a traffic light. After the accident, Kingston required medical treatment at a local hospital and his car was damaged to the point it had to be towed.

Soon after the incident, Kingston notified both his insurance carrier, AAJ Insurance Company, and Merkel's carrier, Surety. Several weeks later Surety contacted Kingston and took his statement. During his statement Kingston told Surety's Claims Adjuster about the extent of damage to his car and the injuries he sustained.

While it conducted its normal investigation into the incident, Surety started to have suspicions that the accident was staged by Merkel as part of an insurance fraud scheme.

Although they firmly did not believe Kingston was involved with Merkel in any way, Surety still contacted Kingston again and informed him they would not be paying any of his damages. Surety went on to inform Kingston that part of the insurance agreement that Merkel had signed with Surety invalidated the policy in case of fraud.

Merkel in essence retroactively became an uninsured driver, and if Kingston wanted compensation he needed to file an automobile accident lawsuit against Merkel. Kingston was taken aback by this and contacted his own insurance company, AAJ.

AAJ told Kingston the filing of an automobile accident lawsuit against Merkel was unnecessary. In accordance with its policy with Kingston, AAJ agreed to pay all of Kingston's damages. They told Kingston doing so would not be held against him, as his policy requirements were quite clear on that matter.

The Lawsuit...

In 2008, AAJ filed a subrogation lawsuit against Merkel and Surety. Merkel could not be located. Surety filed an answer to AAJ's lawsuit using as its defense its policy exception excusing them from having to pay any claims arising out of a staged collision.

AAJ contended Surety's initial investigation of the facts was "convenient" to Surety, stating Surety could unilaterally decide not to pay any claim in which they believed their insured staged the collision.

AAJ contended they should have been contacted when the investigation into the fraud allegation was taking place. They contended their financial interests were at stake, and Surety's failure to include them in the investigation was improper and inequitable.

In their lawsuit AAJ went on to say they requested proof of Merkel's complicity in the staged collision and Surety did not provide AAJ with any credible evidence.

AAJ stated all Surety produced during pre-trial discovery was a one page investigation report. When AAJ asked for additional proof, including, but not limited to, the whereabouts of Merkel, Surety was unable to comply.

AAJ argued to the Court Surety's handling of the entire investigation was at best, sloppy, and at worst amounted to a convenient omission of the development of credible information which might cast doubt on Surety's conclusion the accident was staged. AAJ asked the Court to rule Surety's clause in the policy excusing them from liability (in the event they unilaterally decided their insured staged a collision) should be considered null and void.

AAJ asked the Court to admonish Surety against telling those victims of their insured's negligence that they had the option to file an automobile accident lawsuit, stating doing so was in effect saying to the victims "if you don't like it too bad, sue me (or their insured)."

AAJ asked the Court to therefore rule Surety's "no payment, fraud excuse" clause null and void and asked the Court to order Surety to pay all the money AAJ had paid to its insured, Kingston. AAJ also asked the Court to order Surety to pay attorney's fees and costs of court.

Surety disagreed, stating their "no payment, fraud excuse" clause was viable and was Surety's only protection against policy abuse.


After hearing all the evidence and arguments of counsel the Court ruled in favor of AAJ stating in its opinion:

"Although the Court acknowledges Surety's right to protect itself against the perpetration of fraud by its insured, such protection cannot be initiated against good faith participant victims in a collision."

The Court further made it clear Surety's indication to Kingston that he would have to file an independent automobile accident lawsuit was inappropriate.

In closing the Court ordered Surety to reimburse AAJ for all monies paid out by AAJ to its insured Kingston, and further ordered Surety to pay all costs of court.

Important Points...

  • When involved in an automobile collision where either party sustains injuries it is vital to have as much information about the collision documented in writing. The facts you document should include all available information about the at-fault driver, and if necessary, his passengers. Whenever possible such documentation should be in the form of a Police Report.

    If a Police Report makes no mention of the possibility of fraud, it will be much less likely the at-fault driver's insurance company might in the future deny the claim based on its insured's staging of an accident or perpetrating a similar fraud.

    It is always important to take as many witnesses' names as possible. In the event you are the victim in an automobile collision never presume others will protect your interests.

  • When shopping for an automobile insurance policy be sure you know what the rules are, and what the clauses in the policy mean. This information is especially important in the unfortunate event you become the victim in an automobile collision and the at-fault driver is either uninsured, underinsured, or perpetrating a fraud.

    You want to research the reputations of as many insurance companies as possible before deciding which one to choose.

    These days you can go online to read reviews of the various insurance companies. Find one which, in the event an at-fault driver was uninsured, underinsured, or the suspect in an investigation of fraud, pays you first and asks questions later. You want an insurance company which will be on your side, no matter what.

*This case example is for educational purposes only. It is based on actual events although names have been changed to protect those involved. Any resemblance to real persons or entities is purely coincidental.

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