Litigation Landscape: Auto Insurance Edition

Auto insurance companies are not exempt from litigation. In fact, auto insurance companies can be taken to court by their own customers if they wrongly deny a claim. This is a civil suit and the customer would need to prove that their claim was wrongfully denied.

Auto insurance companies can also be taken to court by the other driver's insurance company, depending on the state and insurance requirements. In addition, auto insurance companies can sue their customers for fraud, for example, if they notice suspicious behaviour such as a history of frequent claims or adding more coverage just before a loss.

Auto insurance companies rarely sue their own customers

However, there are some exceptions. If you commit auto insurance fraud, your insurance company can take you to court. Insurance fraud can include making false or exaggerated claims, adding more coverage just before a loss, or making frequent claims. If you live in a no-fault state, you may need to sue your own auto insurance company to seek compensation. If your insurance provider does not provide fair compensation or denies your claim, suing them may be the next step.

If you've been involved in an accident, the other driver's insurance company may sue you to recover damages. If you live in an at-fault state, the other driver's insurer can sue you.

You can sue your insurer if it wrongfully denies your claim

Yes, you can sue your insurer if it wrongfully denies your claim. This is known as a "bad faith lawsuit".

Insurance companies are legally bound to act in good faith and avoid unfair trade practices. They must abide by the terms of the contract (the policy) and refrain from actions such as:

• Inadequate or delayed claim investigations
• Refusing to pay a claim where liability is reasonably clear
• Failing to approve or deny a claim within a reasonable or specified timeframe
• Denying a claim with little or no explanation
• Failing to defend you in a liability lawsuit where the liability policy potentially covers at least one of the claims

If your insurer fails to meet its legal obligations under the terms of your policy, you can take legal action. This includes wrongful claim denial, untimely and incomplete claim processes, untimely payments, inadequate payments, and failure to pay valid claims.

Before taking legal action, it is important to understand the terms of your policy, gather evidence, and attempt dispute resolution through mediation or arbitration. If you decide to sue your insurer, you will need to document all correspondence and keep records relevant to your claim, such as evidence of property damage, health records, and travel receipts. It is also recommended that you consult an experienced insurance attorney who can guide you through the process and improve your chances of success.

The other driver's insurance company can sue you to recover damages

It is important to note that the answer to the question "Can you sue another driver's insurance company?" is technically "no". However, you can sue the at-fault driver, and their insurance company has a legal obligation to indemnify them per the terms of their policy.

In the state of Virginia, for example, vehicle owners are required to insure their vehicles for at least $30,000 to cover bodily injury claims or pay an uninsured motorist fee to the DMV. The driver's insurance company becomes responsible for paying any valid claims made against the driver, those named on the insurance policy, or, in many cases, against those driving the insured vehicle. The insurance company has a contract that requires it to pay valid claims up to the limit of the available insurance coverage and to provide a lawyer for the at-fault driver if a lawsuit arises.

If the at-fault driver only has limited insurance coverage or no coverage at all, the injured driver may turn to their own insurance company for compensation if their policy has more coverage than the at-fault driver's policy. This is called underinsured or uninsured motorist coverage. The injured driver's insurance company would then analyse the claim from the perspective of the at-fault driver, asserting any available defences.

It is worth noting that an insurance company is only obligated by its insurance contract to pay claims for which a driver covered by the contract becomes "legally responsible". This means that just because there is insurance available to cover a collision, it does not necessarily mean that the insurance company has to pay the claim. Before the insurance company is required to pay a claim, the injured driver must obtain a court judgment against the at-fault driver, thereby making them legally responsible for the damages caused in the collision.

In summary, while you cannot directly sue the other driver's insurance company, you can sue the at-fault driver, and their insurance company is then responsible for indemnifying them per the terms of their policy.

Suing an insurance company is expensive and time-consuming

Suing an insurance company is a complex, time-consuming, and expensive process. It is not something to be taken lightly.

Insurance law is intricate, and it is recommended that you hire a lawyer with extensive experience in insurance litigation to defend your interests. The presence of an experienced insurance professional may help persuade the company to honour its obligations and agree to a fair settlement. However, there is no guarantee that you will win a new settlement even if you hire one.

There are various legal fees and court costs associated with suing an insurance company. The types of lawsuits you can bring against an insurer will vary depending on the state, but one type that remains constant for all states is a breach of contract action. This is because insurance is a contract, and you sue if they deny the claim and breach the terms of the contract.

Before deciding to sue, it is important to be prepared and keep detailed records. Document any correspondence with the insurance company and its representatives, maintain records of your insured property, and keep track of expenses you incur.

Suing an insurance company can take several months or years to resolve. A lawsuit will typically involve the following steps:

• Your attorney will file a complaint against the insurance company.
• Your attorney will gather evidence and conduct depositions during the discovery phase of the lawsuit.
• Pretrial proceedings will take place, and motions will be filed.
• The insurance company may try to settle before going to court to avoid costly litigation.
• If a settlement is not reached, the case will go to trial.
• After the court makes a decision, either party may appeal.
• The lawsuit will conclude after a verdict is reached.

Insurance companies monitor suspicious behaviour to detect fraud

Insurance fraud is a costly and prevalent issue, with estimates of its annual cost to US consumers ranging from $40 billion to $308.6 billion. This cost is ultimately passed on to consumers in the form of increased premiums. Insurance fraud can be committed by both buyers and sellers, and it can occur in almost any insurance industry, including auto, life, health, property, and unemployment insurance.

To combat insurance fraud, insurance companies monitor suspicious behaviour and employ various strategies to detect and prevent it. Here are four to six paragraphs on how insurance companies monitor suspicious behaviour to detect fraud:

Insurance companies have established special investigation units (SIUs) to help identify and investigate suspicious claims. These units consist of small teams of trained professionals, including former law enforcement officers, attorneys, accountants, and claim experts, who are equipped to handle routine fraud activity. More complex or large-scale criminal operations may be referred to the National Insurance Crime Bureau (NICB) or other external agencies.

One crucial aspect of detecting insurance fraud is verifying the customer and their information. Insurance companies perform due diligence and KYC (Know Your Customer) procedures to confirm the identity and personal details of applicants. This verification process helps ensure that customers are who they claim to be and that the information provided on their applications is accurate and truthful.

Insurance companies also investigate claims thoroughly. They examine not only the validity of the claim itself but also the extent of the claimed damages or injuries. By validating supporting documentation and comparing it against the claim, investigators can identify potential fraud, whether it be entirely false or exaggerated claims.

Additionally, insurance companies monitor policy changes and account activity. Any changes to personal information, such as address, contact details, or password, as well as updates to medical records, income, or employment status, may be indicators of suspicious activity. Monitoring these changes can help detect potential fraud, especially when combined with attempts to transfer policies, alter payout methods, or change beneficiaries.

Furthermore, insurance companies conduct internal audits and investigations to detect fraud committed by their own employees or agents. Premium diversion, where an agent collects premiums but fails to forward them to the underwriter or company, is the most common type of insurance fraud. By monitoring transactions, agent behaviour, and policy changes, insurance companies can identify potential instances of premium diversion, fee churning, or asset diversion.

To summarize, insurance companies employ a range of strategies to monitor suspicious behaviour and detect insurance fraud. By verifying customers, investigating claims, monitoring policy changes and account activity, and conducting internal audits, they can identify and prevent fraudulent activities that ultimately protect consumers from increased premiums and financial losses.

Frequently asked questions