Many individuals are unaware that they can sue their own insurance company in certain situations. In reality, there are several instances where it is proper for an insurer to sue their own insurance company. This includes the following:
- Breach of Contract: When you purchase insurance, the insurance company will provide you with a policy agreement. You will be required to review the terms and provide a signature entering into the agreement. Your policy agreement will provide details about your coverage, including which situations will be covered and which are excluded.
- If your insurance company failed to follow the terms of your policy, you may have a claim for breach of contract. This can include a situation where the company fails to pay out a claim that is covered under the policy.
- The court will analyze the policy to determine if there actually was a breach. Many states have laws construing ambiguous contract terms in favor of the policyholder.
- Damages will depend on your jurisdiction.In most states, breach of contract damages are limited to the value of the actual contract. A court may also grant you out of pocket expenses incurred because of the insurer failing to pay your claim. Other damages could include attorney's fees.
- Bad Faith: Some jurisdictions may allow for additional damages if your policy was breached in bad faith. “Bad faith” indicates that the insurance company did not make reasonable efforts to provide you with compensation. This is generally harder to prove. A legitimate dispute or disagreement over insurance policy terms will likely not give rise to a bad faith claim.
- Damages can include consequential damages, emotional distress damages, or punitive damages (in extreme circumstances).
- Low Settlement: Say your insurance company agrees to coverage and defends you. Insurance companies will often attempt to enter into a settlement to avoid going to trial. However, if your insurance company settles your claim for an unreasonably low amount of money, you may be able to sue them to recover the difference between what your claim should have settled for and what the insurance company obtained.
- Claim Coverage or Defense Denial: Other situations where you may be able to sue your insurance company is when they unreasonably deny your claim or fail to defend you in court, which should have been afforded under the agreement.
How Do I File a Lawsuit Against My Insurance Company?
Before you consider filing a lawsuit, you first need to file a claim. This process is as simple as calling or emailing your insurance company after an incident occurs. If the company denies your claim and you believe that this was incorrect under the policy, then you should consider filing a lawsuit.
While coverage denial is sometimes warranted, there are unfortunately some situations where insurance companies will use strategic arguments or loopholes to deny your claim because they do not want to give you a payout. For instance, in an automobile accident case, your insurance company may claim that the accident was your fault or that the policy does not cover your claim for that type of accident. As noted above, you may also be able to file a lawsuit when your insurance company allows a claim but settles for an unreasonably low amount.
Whatever the case may be, you should take the following steps if you think a lawsuit is warranted:
- Contact your insurance company and get a copy of your coverage policy. You should also request that the company send, in writing, the denial and detailed reasons as to why the claim was denied. It is important to attempt to get everything you can in writing. You can review the policy with a local insurance attorney to determine if the company violated the policy;
- Have your attorney research the insurance laws of your state. This will determine what legal options you have available, as well as any potential damages;
- Try to negotiate a deal directly with your insurance company before taking legal action. This could potentially save both sides valuable time and money;
- File for an appeal or administrative hearing with your insurer. While it is unlikely that the insurance company will reverse its decision, it is essential that you do this to comply with the terms of your insurance policy to exhaust all available remedies;
- File a claim with the department of insurance in your state. They may choose to investigate your claim before determining if you need to take your matter to court;
- File a civil lawsuit against your insurance company. If you handled the initial steps on your own, it is highly recommended to hire an attorney at this point; and
- Try to once again settle outside of court. If this fails, you will proceed to trial.
If you end up losing an administrative hearing or lawsuit, you should ensure that you fully understand your coverage under any current or future policies. This will help avoid any misunderstandings or mistaken coverage beliefs down the road.
Do I Need to Hire an Attorney When Filing a Lawsuit Against an Insurance Company?
All insurance companies have a team of attorneys who defend them if they are sued. As such, it is highly recommended that you hire an experienced insurance attorney to help you with your claim. An attorney can review your policy, present you with legal options, inform you about the likelihood of winning a lawsuit against your insurance company and defend you in court.