How Your Insurance Policy Works
Understanding your insurance policy can be the difference between getting the money you need to cover your medical bills or car damage and being denied on your claim. This is true regardless of whether you are dealing with a standard auto insurance policy, health insurance coverage, long-term care, property insurance, or any other type of coverage. A contract of insurance is merely a contract, and it is one of personal indemnity or repayment of loss. Because of this, your policy is like any other contract you may enter into in life. It defines the terms of your coverage, who is covered under the policy, and how the coverage works. It also sets forth the duties of all parties under the contract, including the insurer and the insureds. Although most people are well aware of the specific details of a contract when they sign it, many forget this when it comes to an insurance contract. More often than not, people do not read or understand their policy before they need to make a claim . This means they may not fully understand what is covered and what is not. Further, they may not know the specific duties required of them under the contract. The most common clauses you may find in nearly any type of insurance contract include the following: These contractual provisions basically put the burden on the contract holder to do everything in his or her power to fully and accurately document the damage in question. Taking quick action to mitigate damages, hiring appropriate experts to confirm the full extent of the damage as needed, and taking steps to ensure there are no other insurance policies that could cover the damage in question are all essential. While it is impossible for you to completely predict what your insurance company and its adjuster will review and investigate, when you have a clear understanding of your coverage’s terms and conditions, you will at least know enough to start taking the essential steps to protect your rights.
Reasons to Sue an Insurer
The majority of insurance companies are highly reputable, with a majority of their business being conducted in good faith and their claims handling practice being excellent. Nonetheless, many problems can arise in the handling of your insurance claim that may provide grounds for you to file a lawsuit. Having grounds to file a lawsuit does not mean you will win the lawsuit, however.
Some typical grounds for an individual or business entity suing their own insurance company for bad faith practices or denial of their claim are:
(Bad Faith) Denial of Claim: Bad faith denial of an insurance claim occurs when an insurer fails to honor its payable obligation to its insured. This can occur when the insurer tries to convince the insured outside of the policy that it shouldn’t have to pay a given claim. Even if the insurer’s interpretation of the policy is correct and the claim is non-payment-worthy, it may still be deemed to have been made in bad faith if the insurer denies the claim contrary to the policy without fully examining the facts and reaching a rational basis for denial.
(Breach of Contract) Denial of Policy Coverage: An insurer may also be alleged to have breached the terms of the contract when it denies or delays in payment of a valid claim, or provides less benefit than warranted under the circumstances. Again, the reason or explanation provided for the delay or partial payment must be shown to be insufficient. In some cases, bad faith denial of the claim may accompany the breach of contract.
(Breach of Contract) Claim Misrepresentation: Here, the insurer may also be alleged to have implied it would insure certain risks or pay for certain things, but failed to do so when it came time to pay benefits. Some insurance companies are more "marketing" based than others, falsely asserting or implying they would cover certain risks, when in fact they know they won’t or it would be questionable whether such risks are covered.
(Violating Statutes or Regulations) Claims Handling Violations: When an insurance company violates its duties or obligations according to its policy, or to a state’s laws and regulations governing insurance companies (such as providing an explanation for denying a claim), it may breach its contract with a policyholder. It may also violate insurance-related statutes and regulations such as statutes prohibiting the improper use of credit reports or not making timely payments.
Although an insurer’s actions may appear to be reasonable on the surface, its actions may violate specific laws or guidelines that govern the insurance company’s role, thus giving rise to a breach of contract cause of action.
Steps to Consider Prior to a Lawsuit
Even if you are frustrated with the insurance company’s handling of your claim, most experts recommend that policyholders try to resolve the dispute without litigation first. Consider the following steps:
- File a complaint with the insurance company. Every state has some sort of insurance department. In some states they vary by type of insurance, but if you contact the department you should be able to find out how to file a complaint with your state’s insurance department. Information about every state’s insurance department can be found on the National Association of Insurance Commissioners Web site, www.naic.org.
- Seek mediation. Mediation is a voluntary process whereby an objective, impartial person helps parties in a dispute reach a mutually acceptable settlement. In most cases, the decision to accept or refuse the settlement rests with you, so if you reach an impasse at least you can still go to court if necessary.
- Consult an attorney. You might not need an attorney for the entire process, but consulting with one can help you understand your legal rights and responsibilities. Sometimes an attorney letter alone can motivate the insurance company to resolve the matter without litigation.
Legal Steps of Suing Your Insurer
Suing your own insurance company is an option if you face a bad faith denial. The first step is to gather evidence regarding the denial of coverage. This can include a copy of the policy, the correspondence regarding the insurer’s refusal to pay, and any other related documents. The second step is to open a case in your state’s civil court. You can open a case without an attorney, but your chances of victory are much higher when you have one on your side. If you have an attorney, he or she will open the case for you. The statement of the claim, or "complaint," goes into the case file. This document explains why you are filing the suit, and what you demand from the insurance company. For example, you might request payment for damages, personal property, or medical bills, depending on the reasoning behind your claim against the insurer. Next, you have to serve the complaint to your insurance company. If it’s a small insurer with local offices, you can hand-deliver the complaint to the company’s registered agent (the person designated by the insurance company to receive service of process). If it’s a larger insurer, such as one with offices across the country, you can hire a court official to serve the complaint. After you complete this step, the insurance company has 20 days to respond to the complaint. If it doesn’t respond at all, the court may enter a default judgment in your favor. In other cases, the insurance company will provide a response to the complaint. The court then schedules a settlement conference, and requires both parties to attend. It’s a chance for the parties to work something out before going to court. If you and the insurer can’t come to an acceptable resolution, the case proceeds to litigation. If you lose the lawsuit against your insurance company, you may owe the company for attorney’s fees and court costs. Winning a judgment for damages does not always guarantee you will collect from the insurance company.
Challenges When Suing an Insurance Company
Suing your insurance company is not always cut and dry. Many potential problems may arise when you take the legal route, such as the length of the process, the costs of legal fees, and the insurance company’s strategies for fending off the lawsuit. It is helpful to understand these challenges before you bring a suit against your carrier. The first issue to consider is that bringing a lawsuit might not be the fastest way to resolve your claim against your insurance company. Even a simple case where the court denies the insurance company’s motion to have the suit dismissed may take more than a year to go to trial. Other cases can take several years to resolve. During the time that your case is pending, you may be forced to continue paying the premiums on your policy or find another way to cover the property damage or injuries that were the basis of your suit. The process of suing your insurance company can also be expensive . You may be required to submit payments every month to your attorney while he/she helps you build your case against the insurer. If your case is heard in court, you may also be required to pay for court filings, depositions, hiring expert witnesses, and gathering other evidence to support your claim. Even if you win your case against the insurance carrier, payment can be delayed as the company’s attorneys file for an appeal and put other strategies in place to fight the judgment. Lastly, insurance companies have their own teams of legal experts to fight against even the most just claims against them. Some insurers have unlimited financial resources to fight against the claimant, and others will do their best to drain your financial resources through delays and additional litigation. Your attorney is your greatest ally in holding the carrier accountable, so it is important that you choose one with relevant experience.
When Could You Win and Be Compensated in Insurance Case?
Potential outcomes for successful litigants in lawsuits against insurance companies vary widely and are generally the same as for other types of lawsuits. However, the legal remedies and compensation issues can become fairly complex when considering the possibilities for any long-developed contractual benefits, the likelihood of additional compensation via potential punitive damages and the possible award of legal fees and costs. The possibilities of class action lawsuits and large punitive damages awards or settlements also can be a factor, as well as any statutory or common law duties of good faith a court may impose on the insurer that affect the liability and exposure of the company to the plaintiff. In addition, many states have enacted specific statutes that provide remedies for policyholders who are sued by insurance companies over covered claims, and how those apply to a particular situation again can be complicated to assess.
An important point to keep in mind is that most insurance policies include a "Civil or Civilized Dispute Resolution" provision, as well as a "Duty to Cooperate" provision. The Civilized Dispute Resolution provision typically reads as follows: "We [the insurance company] do not agree with how you [the policyholder] have solved the problem. We will first try to settle the matter through informal discussion. If the matter is still not resolved we will use ordinary arbitration. However, either of us may sue." It is important to note that an insurance policy provides coverage only for the injuries specifically covered under the contract. Therefore, the damages available in court – beyond the specific benefit under the policy – may be limited or unavailable.
Professional Help Needed
If the prospect of suing an insurance company seems appealing for whatever reason, that is how your own attorney should be able to help you. An experienced lawyer, especially those who are starting to specialize in insurance disputes, will be able to give you specific advice about your case and the likelihood of success. You should also learn whether the attorney has a good track record and is suitable for your circumstances.
What this really comes down to is whether or not your attorney has been through similar procedures and various stages of litigation more than once . At some point, you should also insist on seeing an attorney’s insurance policies and past success records. Make sure you are comfortable with your choice when you move forward with your legal case.
This can be very problematic because different attorneys are going to have different levels of experience across the board. For example, in most states, a third year law student should be able to handle just about any type of insurance case that a new associate attorney could handle at a private firm. Long story short, attitude is the most important characteristic for lawyers in general, while experience is important when hiring an insurance lawyer.
