Insurance companies are supposed to fairly compensate victims, but that doesn’t always happen after an accident. Here’s what you should know about auto insurance claims.
After an auto accident, you rely on an insurance company to make you whole again.
In other words, insurance companies should put the victim in the same financial situation after the accident that they were in before the accident.
Of course, auto insurance companies can’t rewind the clock to make it as if your accident never happened. However, with financial compensation, they can put you in as close to a position as you were before the accident.
The insurance company should pay for your financial losses, such as property damage and medical bills, as well as non-economic losses like pain and suffering.
It’s crucial to understand how insurance companies handle your claim from their perspective. You can use this knowledge to ensure that you receive a fair settlement for your claim.
Which Insurer Handles Your Claim?
Auto insurance companies handle most personal injury claims. After an auto accident injury, you have the option to file one of the following:
- A first-party claim with your insurance company
- A third-party claim against the other driver’s insurance
The person who pays for the insurance coverage is the first party, and the second party is the insurance company. The person who sustains injuries or property damage because of the first party’s actions is the third party.
When deciding which type of claim to file, you will need to examine the facts of your accident and be familiar with your state’s insurance laws.
No-Fault vs At-Fault States
Your state laws determine which type of claim you can file. States have either no-fault insurance laws or at-fault insurance laws.
No-fault states require drivers to have their own insurance to cover their injuries no matter who caused the accident. Drivers must carry a minimum amount of Personal Injury Protection (PIP) coverage. For example, Florida is a no-fault state that requires its drivers to carry a PIP minimum of $10,000.
PIP coverage pays the medical expenses for you and your passengers in an auto accident up to the policy limits. If you reside in a no-fault state, you will need to file a first-party claim with your own insurance for most injury claims.
No-fault insurance doesn’t apply to property damage claims. The at-fault driver’s insurance company should pay for your vehicle repairs.
If you live in a fault state, you can file a third-party claim with the at-fault driver’s insurance company. That driver’s bodily injury (BI) liability coverage will pay for your medical expenses, lost wages, and pain and suffering up to the policy limits.
Reporting Your Auto Accident
An auto insurance policy is a legal contract between the insured (you) and the insurance carrier. After an auto accident, the insurance company has a responsibility to fulfill their contractual obligations to take care of you.
You also have responsibilities under the cooperation clause of your insurance policy. Generally, these clauses require you to report any accidents and cooperate with the insurance company’s investigations.
You should notify your insurance company even if the accident wasn’t your fault. You never know when someone from the other vehicle might try to turn around and blame you. Your insurance company will be in a much better position to protect your interests if they already know about the accident.
Failure to uphold your end of the contract can cause your insurance company to refuse to renew your policy, raise your rates, and possibly even cancel your policy.
After you determine if you should file a first-party or third-party claim, contact the insurance company as soon as possible. You can notify the insurance company of your intent to file a claim by letter, over the phone, in-person if they have a local office, or online through a website or an app.
After you report your claim, the insurance company will assign a claims adjuster to investigate the details and calculate the lowest settlement amount possible.
You don’t have to discuss compensation until you’ve finished your medical treatments and recovered from your injuries. In the meantime, gather critical evidence you’ll need for your injury claim.
Useful information includes:
- Other driver’s contact and insurance information
- Police report
- Names and badge numbers of officers who responded to the incident
- Statements and contact information for any witnesses
- Medical reports from your injuries
- Notes you might have about the accident
Now is an ideal time to start an injury claim file to keep and organize all of the documents and related information.
When reporting the accident, expect several questions:
- When did the accident occur?
- What was the location of the accident?
- Who was involved?
- How did the accident take place?
- Whose fault do you think the accident was?
- Were you hurt? If so, what injuries did you sustain?
- Was a police report filed?
Be careful if the adjuster asks to take your recorded statement. The adjuster is trained to trick you into saying things “on the record” that will hurt your claim.
You are not obligated to give a recorded statement before consulting a personal injury attorney about your injury claim.
Investigating the Accident
The insurance company’s adjuster won’t approve your claim until they verify who caused the accident through their own investigation.
The insurance adjuster may:
- Review the facts of your case
- Visit the scene of the accident
- Interview witnesses
- Analyze evidence such as your vehicle, medical records, police reports, pictures, etc.
The adjuster will compare their results with your account of the accident. Any inconsistencies between your story and what their investigation reveals could cause the adjuster to deny your claim or offer you a smaller settlement.
Duration of the Accident Investigation
Since an investigation is a substantial portion of processing a car accident claim, it may take four to six weeks to complete. If the claims adjuster is missing information or your accident was incredibly complicated, it could take longer. You can help move the process forward by quickly responding to any requests for additional information.
Insurance carriers will sometimes drag out the investigation process, hoping to frustrate or confuse you into giving up your claim or settling for a small amount just to get it over with.
Extreme delays might run up against the statute of limitations. The adjuster knows you must settle your claim or file a lawsuit before the statute runs out, or lose your right to any compensation. It’s your responsibility to keep track of the deadlines for your claim. The adjuster doesn’t have to tell you when time is running out.
Calculating the Value of a Claim
The next step in the claims process is for the insurer to calculate what your damages are worth. For claims that involve both property damage and bodily injuries, you might be offered a separate settlement offer for each.
Getting Your Vehicle Repaired
You can file a third-party claim for your property damage with the at-fault driver’s insurance company, even in a no-fault insurance state.
You also have the option to file a first-party claim with your insurer to use your collision coverage to expedite repairs.
The claims adjuster will determine the cost of repairs to your vehicle. You have the right to ensure that their estimate covers the costs of any necessary repairs. Insurance companies typically require claimants to get at least one repair estimate.
Don’t be surprised if the adjuster chooses the lowest estimate for the repairs. You want to protect your interest by getting your vehicle repaired. They want to protect their interest by only paying what they must to get your car repaired.
If the repair shop replaces your car’s parts with brand new components, the insurance company might argue that your car’s new features enhance its value. They can use this point, commonly referred to as “betterment,” to justify reducing the amount of your property damage settlement.
You can take your car to either your own repair shop or a shop chosen by the insurance company.
Depending on the repair shop you select, you can work with the insurance adjuster to have payment made directly to the repair shop, or you can pay for the repairs out of pocket and seek reimbursement from the insurance company.
Your collision coverage will pay for approved car repairs, less the amount of your deductible, no matter the circumstances of the accident. However, if the accident wasn’t your fault, your insurance company will seek subrogation from the at-fault driver’s insurance company to recover the money they spent on your behalf, as well as your deductible.
You should cooperate with your insurer in their efforts to obtain subrogation. For example, don’t make agreements or sign waivers that release the other driver from responsibility.
Subrogation is typically sought at the end of the insurance claims process. If subrogation is successful, the insurance company must recover the cost of your deductible and refund it to you.
Insurance companies will not pay for upgrades or improvements to your vehicle, and will only approve what the adjuster deems to be “reasonable” repair costs.
For instance, if the insurance company is willing to pay $2,000 for damage to your car, but you take it to a shop that charges $2,500, you will pay the additional $500. If you have a $100 deductible, you will pay that in addition to the $500, for a total of $600.
If you decide to have your car repaired at an insurance company-approved repair shop, they pay the shop directly. You will need to pay your deductible, if applicable, directly to the repair shop when the repairs are complete.
What Happens When a Vehicle’s Damages Exceed Its Total Value?
Some vehicles sustain so much damage that repair costs exceed the vehicle’s worth. You won’t know if this applies to you until after the insurance company has examined the damages to the car.
About half of all states allow insurance companies to use the Total Loss Threshold (TLT) to determine if a car is a “total loss.” Generally, if the repairs exceed 50 to 75 percent of the value of the vehicle, the insurance company will deem it a total loss.
Example: Using TLT to Evaluate Vehicle Damage
Mark lives in Indiana, where the TLT is 70 percent. Before the accident, his vehicle had a value of $10,000. As a result of an accident, it will cost $7,500 to repair the damages. Since the damages are at least 70 percent of the vehicle’s total value, his insurance carrier considers it a total loss.
Other states use the Total Loss Formula (TLF). With this method, the insurance company adds the repair costs to its salvage costs. If that number exceeds the Actual Cash Value (ACV) of the car at the time of the accident, it will be a total loss.
If your car is a total loss, you have two options. The first is to surrender your vehicle to the auto insurance company in exchange for the amount that they say your car is worth. You can use the money to purchase a new vehicle, and the insurance company will sell your damaged car to a salvage yard.
The second option is to keep your car and pay for the repairs yourself. The insurance company will pay you its ACV and the amount your car could have been salvaged for.
How Does the Insurance Company Determine ACV?
ACV is also called “market value” and represents the depreciated value of a vehicle. Insurance companies determine a car’s ACV in a similar way that real estate agents determine the value of a home. They look at what exact or similar vehicles have sold for in your area. Often they rely on sources such as NADA or Kelley Blue Book.
Factors that impact ACV include:
- Wear and tear
- Owner upgrades
- Any upkeep performed to keep the car in service
You can use evidence such as receipts for parts and repairs, pre-accident photos, and accurate service records to attempt to negotiate a higher ACV.
Bodily Injury Claims
The insurance adjuster will offer a settlement for the losses you suffered due to your physical injuries. Companies are often more likely to push back on your attempts to negotiate a reasonable settlement offer for your injuries than your property damage.
Your losses can include both special and general damages. Special damages have a predetermined value, such as medical expenses or lost wages.
General damages don’t have a predetermined amount and can include pain and suffering and loss of consortium. General damages are not available under PIP coverage in no-fault states.
When negotiating an injury settlement, it’s crucial for you to highlight:
- Pain your injuries caused
- The difficulty of your recovery
- Potential long-term effects of your injury
- Anxiety you’ve experienced from not being able to work
- Type and actual value of your out-of-pocket costs
Personal Injury Calculators
Roughly half of all insurance carriers use computerized personal injury calculators to determine settlement offers. Calculators like the widely used Colossus program often help the insurance companies save money on special damages.
The program relies on data from the claimant’s medical records to give severity points to their injuries. The points and hundreds of other factors control how much the insurance company offers claimants in compensation.
Some other factors include:
- If the claimant retained a personal injury attorney
- How willing the attorney is to go to trial
- The average settlement amounts for similar claims in or near the same location
- If the claimant required treatment in a hospital
- The type and length of the medical treatment
- If the claimant required medications or physical therapy
How Do Insurance Companies Calculate General Damages?
Generally, insurance companies calculate special damages first. Then they will select a multiplier between 1.5 and 5, depending on the severity of the claimant’s injuries, to calculate general damages.
For example, Susan broke her leg in a car accident. She required surgery and physical therapy. Her insurance adjuster used a computerized program to calculate her special damages at $20,000. He then chose a multiplier of 2 to determine that her general damages were worth $40,000.
The adjuster established a settlement range from $25,000 up to $60,000 in total for Susan’s claim. Of course, his first settlement offer to Susan was only $25,000.
Insurance Company Obligations
Every state has specific laws regulating the insurance industry, its claim processes, and their conduct.
Insurance companies should act in good faith and fair dealing with every claimant.
Insurance companies must:
- Provide prompt and continued communication with the claimant
- Defend their insured if they are named in a lawsuit
- Acknowledge, investigate, and approve or deny a claim within a realistic amount of time (usually a specific amount of time under state laws)
- Provide prompt, fair, and reasonable settlements of claims
- Give thorough explanations for claim denials
If an insurance company doesn’t fulfill these obligations and follow your state’s insurance statutes, you may be able to file a bad faith claim against them.
Some states only allow first-party bad faith claims, however any claimant can file a complaint with the state’s insurance commissioner.
Case Summary: Claimant Sues Her Insurance Company for Bad Faith
Regan Wilson was 21 years old when a drunk driver struck her. She suffered neck injuries as a result. The at-fault driver was insured, but only carried the state’s minimum of $15,000 injury liability coverage.
She filed a first-party underinsured motorist claim with her insurer, 21st Century Insurance Company. Her policy had underinsured motorist coverage limits of $100,000.
Regan’s orthopedic surgeon told her that she had cervical spine damage that wasn’t typical for her age. Because of this, the doctor said she would experience degenerative disc changes due to her injury.
The insurance company didn’t request an independent medical examination (IME) or talk to her orthopedic surgeon. Wilson’s claims adjuster argued that the accident only caused soft tissue injuries.
21st Century then offered her compensation of $5,000. When combined with the $15,000 she received from the at-fault driver’s insurance company, they claimed it would entirely compensate for her damages.
After failed negotiations, Wilson and her attorneys started arbitration proceedings. Only after discovering that one of her physicians recommended surgery, the insurance carrier requested an IME.
The IME physician agreed with Wilson’s own physician. 21st Century paid her $85,000 per her policy of $100,000, less the $15,000 she recovered from the at-fault driver.
Wilson and her attorney filed suit against 21st Century for its bad faith actions. The insurance company won a summary judgment stating that there was a dispute between her medical providers about the seriousness of her injuries.
Wilson and her attorney appealed this decision and won. The California Supreme Court explained that 21st Century acted in bad faith by ignoring the opinion of Wilson’s orthopedic surgeon and not making any further effort to investigate and evaluate her claim. The lower court shouldn’t have granted summary judgment.
Not only did Wilson deserve compensation for her physical injuries, but she also had the right to pursue damages for the insurance company’s bad faith actions.
An Attorney Could Maximize Your Settlement
Even when an insurance company legally handles your claim and acts in good faith, they’re likely to offer you a lowball settlement. Adjusters and insurance companies fight claimants tooth and nail to save money.
Further, many claimants don’t know what their claim is worth or that they can negotiate for a higher settlement.
A personal injury attorney can use many strategies to help increase the value of your claim, and often can settle your claim without needing to file a lawsuit.
You don’t need money upfront to meet with an experienced lawyer. Most injury attorneys offer a free consultation to car accident victims, and represent victims on a contingency fee basis. Your attorney won’t get paid unless they settle your claim or win your case at trial.
If you have recently reported your accident, are unsure if your settlement offer is reasonable, or are stuck in negotiations with the insurance company, don’t wait to meet with an experienced attorney.
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