Can You Sue Your Own Car Insurance Company? What You Can Do About Claim Denials

Sometimes you have to sue your own car insurance company to get the compensation you deserve. Learn why auto insurers deny or undervalue claims and what you can do about it.

Your insurance company is supposed to protect your interests.

Their purpose is to make you “whole” again after an auto accident. In other words, they must put you back in the same position as you were before the accident.

Despite this obligation, it’s not uncommon for insurance companies to put their interests ahead of their customers. Insurance companies are for-profit businesses. The more money they pay on claims, the less profit they make.

Also, insurance adjusters are pros at finding reasons to deny your claim. They might tell you that your denial is due to your policy definitions or exclusions. They could accuse you of breaking the cooperation clause or say that you don’t need compensation from your uninsured/underinsured motorist policy.

Other times insurance companies act in bad faith by unfairly raising your premiums after you file a claim or delaying your claim. No matter the situation, you have rights under state laws and your insurance policy.

You can use these to your advantage to fight or even sue your insurance company if they aren’t upholding their end of the bargain.

Insurance Policy Definitions and Exclusions

An auto insurance policy is a legal contract between the insurer and the insured party. They’re often intentionally confusing to laypeople to the benefit of insurance companies.

If your insurer denies your claim, they must provide you with a reason. Insurance companies sometimes unfairly use their policy definitions or exclusions as a reason for denying a claim.

If you don’t understand something in your policy, do some research so you can arm yourself with knowledge.  You can’t fight your insurance company for denying your claim if you can’t understand the denial reasons they gave you.

Policy Definitions

Your car insurance policy coverage is summarized on the declarations page. Your “dec page” contains general information about your policy, such as whom it covers, what it covers, and what you need to do to file a claim. Here you’ll also find your policy limits, what types of property or risks are covered, and the policy’s effective dates.

The nitty-gritty contract language is in the actual policy. Most insurance policies are several pages, including a definitions section that goes over the key terms you’ll find in the document.

Legal terms used might include:

  • Loss minimization: Requirement to take all necessary steps to limit the loss of insured property
  • Indemnity: An agreement to compensate for damages
  • Proximate Cause: The specific cause of damages
  • Subrogation: The insurance company’s right to recover money paid on your behalf from the at-fault party
  • Good Faith: The insurance company’s obligation to handle your claims honestly

How the insurance company interprets and applies these crucial terms could result in an unfair denial of your claim.

Auto Insurance Policy Exclusions

Most standard consumer automobile insurance liability policies, including No-Fault Auto Policies, have what are called “Exclusions.”

Exclusions are conditions in which your auto insurance policy won’t provide coverage, such as the “household” or “family exclusion” that generally means your family members can’t file a liability claim against your insurance company when you’re that at-fault driver in a crash.

Depending on the specifics of your policy, other exclusions might include:

  • Injuries suffered while driving a company vehicle, one of your employer’s vehicles, or your own vehicle while using it for commercial purposes
  • Damage or bodily injury you intentionally directed someone else to cause
  • Specific motor vehicles or classes of vehicles
  • Car accidents that happen outside of the United States
  • A “named driver” exclusion, usually a household member with a terrible driving record

If your auto insurance company denies your claim based on policy exclusions, you have the right to know why. Examine your policy’s exclusions section so that you can better understand what’s not covered.

Sometimes insurance companies claim an exclusion that you won’t find listed in your policy, or the adjuster’s explanation of the exclusion doesn’t sound right to you.

If your case goes to court, sections of an insurance policy that are vague are typically decided in favor of the policyholder, not the insurance carrier.

Underinsured/Uninsured Claim Denials

All but one state requires drivers to prove financial responsibility. “Financial responsibility” means that motorists have to carry certain types of auto insurance, or at least the minimum liability coverage.

However, not every driver complies with this legal requirement.

Also, even when a driver does have insurance, the minimum required liability coverage amounts often don’t cover all of an accident victim’s losses.

Suppose you are in an accident with a driver who doesn’t have insurance or whose insurance policy limits won’t cover all of your damages. In that case, you can file a claim on the underinsured/uninsured motorist portion of your policy. Depending on your state’s laws, underinsured/uninsured motorist coverage is offered or required on all auto insurance policies.

Uninsured Motorist Coverage (UM)

Over 20 states require UM bodily injury coverage. If you have Uninsured Motorist Coverage, it can help pay for your damages if you’re hit by a driver who doesn’t have insurance. You can also use it if you’re involved in a hit and run accident.

Instead of filing a third-party claim with the at-fault driver’s insurance company, you’ll file a first-party UM claim with your own insurance carrier.

Underinsured Motorist Coverage (UIM)

Underinsured Motorist Coverage can help cover your damages if you’ve been injured by a driver who has insurance coverage, but not enough to cover all of your damages.

Suppose you were in a car accident in California with a driver who only had the minimum liability coverage of $15,000. Your medical bills totaled $25,000. You could file a third-party claim up to the $15,000 policy limit and then file a first-party claim under your UIM for the remaining $10,000.

Lawsuits against insurance companies often involve bad faith claim denials or low settlement offers on UM/UIM claims. Sometimes insurers will try to escape their financial liability by saying that the at-fault driver’s insurance covers all of your damages. In other words, your insurance company doesn’t believe the extent of your injuries and pain and suffering.

If you believe your insurance company is unfairly denying or devaluing your UM/UIM claim, you might want to explore your legal options to ensure you receive a fair settlement for your damages.

Insurers might refuse to pay underinsured claims for the following reasons:

  • Notice: You failed to provide notice of the accident within a reasonable time.
  • Lapsed policy: You failed to pay your premiums, and you lost coverage before the accident.
  • Exclusions: Your underinsured motorist policy doesn’t cover your type of damages.
  • Value: The at-fault driver’s liability insurance policy covers the entire value of your claim.
  • Proof: You failed to provide evidence of your medical expenses, lost wages, and other damages.

Cooperation Clause Requirements

You might also fight or sue your car insurance company if they accuse you of violating your insurance policy’s cooperation clause. They can use your supposed violation as a reason to deny your claim or cancel your coverage.

A cooperation clause is a provision in your auto insurance policy that requires you to help your insurer in processing and investigating claims. The clause is important for both you and your insurance company.

As explained by one court:

“Cooperation is essential to the insurance relationship because that relationship involves a continuous exchange of information between insurer and insured interspersed with activities that affect the rights of both. The relationship can function only if both sides cooperate.”

Further, if you don’t cooperate with your insurance carrier, it could be impossible for them to investigate the claim correctly. Without a complete and adequate investigation, you and your insurance company could be on the hook for the other party’s damages.

It’s beneficial for both you and your insurance company to cooperate.

For example, the cooperation clause:

  • Gives the insurer a right to get claim-related information while it’s still fresh
  • Allows the insurer to determine its responsibilities
  • Helps prevent fake injury claims by others

As the insured driver, the cooperation clause requires you to:

  • Tell your insurance company if you were in an accident
  • Provide information necessary for your claim’s investigation, including a recorded statement of what happened
  • Do what the insurance company requests you to do in defense of the claim
  • Attend related hearings and trials, as needed
  • Avoid doing anything that could risk resolving the claim in your insurer’s favor

Cooperation Clause Example

DUTY TO COOPERATE

A. Duty Generally

1. You or any other involved insured must: (1) authorize us to obtain records and other information; (2) cooperate with us in the investigation or settlement of the claim or defense against the “suit”; and (3) assist us, upon our request, in the enforcement of any rights against any person or organization which may be liable to the insured because of injury or damage to which this insurance may also apply.

2. Examples: Breach of cooperation clause may include failures to cooperate with claim investigation or defense of claim or suit, e.g.: failure or refusal to: – provide requested documents – appear for EUO – appear for IME (UM/UIM) – appear for deposition or trial.

Can the Insurer Cancel Your Policy?

If you violate the cooperation clause in your policy, the insurer may:

  • Refuse to renew your policy
  • Increase your premiums
  • Potentially cancel your policy

An insurance company can’t cancel your insurance policy, though, unless they have significant evidence showing that you didn’t cooperate with them and violated the cooperation clause. If they can’t prove this, but did cancel your policy, you may have grounds for a bad-faith lawsuit against your insurer.

Insured motorists must also know that cooperation clauses put certain requirements on the shoulders of insurance companies.

The insurance company should:

  • Communicate their cooperation requests in words that are easily understandable and unmistakable
  • Send their requests in writing to the address where their insured normally receives mail
  • Clearly communicate in writing what will happen if you don’t cooperate
  • Make cooperation requests in good faith, even if they don’t think you’ll corporate

Insurance companies cannot rightfully cancel a policy if they haven’t properly communicated what they need from you.

Further, in most states, cancelation is only legal if the insurance company shows that its insured made a willful and intentional choice not to cooperate with their requests.

Case Summary: Insurance Company Failed to Show Intentional Violation of Cooperation Clause

In 1981, David Thomas and William Bowyer were in a car accident that severely injured Bowyer. Bowyer filed a claim with Thomas’s insurance company, Aetna Casualty & Surety Co. Aetna retained a local attorney to represent Thomas.

Thomas informed the attorney that it was hard to contact him at work because he was often on the road. He gave the attorney his mother’s contact information and told the lawyer that she would know how to get in touch with him.

Aetna scheduled a deposition for Thomas, but he failed to appear. As a result, Aetna sent Thomas a letter stating that if he didn’t cooperate in the future, the company would “conduct any investigation or activity in connection with the case under a full reservation of the Company’s rights.

In plain language, Aetna was saying they reserve the right to decide not to cover Bowyer’s claim and not to defend Thomas. 

Mr. Thomas contacted the adjuster who sent the letter and informed the person that he was willing to appear at a deposition, even though he was moving out of state.

Thomas contacted the Aetna representative many times over several months, but the representative never informed him that there was a new deposition date (which Thomas failed to make).

The Aetna representative sent another letter to Thomas at his mother’s address. The letter discussed his failure to appear at the deposition and his continued failure to cooperate. The letter, however, failed to inform Thomas of the potential consequences of his lack of cooperation.

Aetna claimed that they made numerous unsuccessful attempts to reach Thomas on the phone. However, Thomas frequently called Aetna to see how the case was going.

On one call Thomas made to Aetna to inquire about the status of the case, Aetna advised him that they denied coverage because he had failed to cooperate under the policy’s cooperation clause.

Aetna refused to pay Bowyer’s injury claim, arguing that Thomas had no coverage because he didn’t cooperate. Bowyers took the matter to court. The case subsequently went to the Supreme Court of Appeals of West Virginia.

The Appeals Court ruled that Aetna could not cancel Thomas’s policy for three reasons:

  1. Aetna didn’t prove that Thomas was intentionally and willfully uncooperative
  2. The letters Aetna sent to Thomas failed to make it expressly clear that if he didn’t respond, he would lose his insurance coverage
  3. Aetna presented no evidence that their legal rights were substantially impacted as a result of Mr. Thomas’s lack of response

The Supreme Court determined that Aetna didn’t establish a justification to void Thomas’s insurance coverage. Bowyers had a right to make an injury claim against Thomas’s car insurance with Aetna.

Understanding Bad Faith Insurance Claims

Each state regulates the insurance industry under its own laws. In general, state laws say that insurance companies must use good faith and fair dealing with all claims, no matter the location or type of claim.

For example, insurers should:

  • Communicate clearly and promptly with claimants, providing updates as necessary
  • Process claims within a reasonable amount of time (usually a specific amount of time under state laws)
  • Handle claim settlements fairly, reasonably, and without unnecessary delays
  • Thoroughly detail their reasons for claim denials
  • Defend their insured if a claimant files a liability action against them for a car accident

Your insurance company works for you and must follow federal and local state laws. Too many insured individuals believe that the insurance company is in control and will get their way no matter what. If the insurance company denies their claim, they don’t take the time to investigate further.

If your insurer doesn’t follow your state’s insurance statutes and handles your claim in bad faith, you could sue them.

Another option is to file a complaint with your state’s insurance commissioner.

Examples of bad faith insurance actions include:

  • Needing to file a lawsuit to recover compensation due under your insurance policy
  • Failing to promptly provide a reasonable explanation for denying your claim or offering a compromised settlement
  • Failing to make a prompt, fair, and equitable settlement of claims when liability is reasonably clear
  • Denying claims without performing a reasonable investigation
  • Failing to use realistic standards to investigate a claim
  • Raising your premium for unfair or unlawful reasons
  • Altering your policy after you file a claim

Proving Your Insurer Acted in Bad Faith

An insurer owes its policyholders a duty of good faith and fair dealing based on the parties’ unique relationship.

Proving bad faith usually requires you to show that:

  1. You didn’t receive the benefits that you were entitled to under your policy. You must prove that your claim was valid under the terms of your insurance policy and that the insurer denied it anyways. In some states, you must make a final demand for payment before turning to litigation.
  2. Your benefits were withheld unreasonably. You could have a valid reason to sue your insurer if it didn’t factually assess the circumstances of your claim.

Fighting Your Auto Insurance Company

Large insurance companies often have an unfair advantage over their policyholders and claimants. Confusing policy language and laws make it easy to take advantage of claimants.

If your insurance company denies your claim or voids your coverage after filing a claim, it’s in your best interest to investigate further. You might need to fight for the compensation that you deserve.

You’ll need help in fighting your insurance company. A great source of help is a well-versed personal injury attorney.

An attorney can examine your claim and the actions of your insurance company. If they believe your insurance company unfairly denied your claim or otherwise acted in bad faith, they can help you assert your rights.

You don’t need money upfront to meet with or hire most personal injury attorneys. Many offer free, no-obligation consultations. During this meeting, they can learn more about what you’re experiencing and determine if and how they can help.

If you decide to hire a lawyer, most work on a contingency fee basis. If and when you receive compensation, they’ll collect their fees from the proceeds. If they don’t obtain money on your behalf, you owe them nothing.

Don’t let your insurance company deny your claim or cancel your coverage after a claim without exploring your legal options.

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Dustin Reichard, Esq. is an experienced attorney with 20 years of work in the legal field. He’s admitted to the Illinois State Bar and the Washington State Bar. Dustin has worked in the areas of medical malpractice, wrongful death, product liability, slip and falls, and general liability. Dustin began his legal career as a JAG... Read More >>