Car insurance—whether your own or someone else's—is one of those things you hope to never need. When you file a claim, it's because you've had a car accident or something else bad has happened. You expect to get your losses covered. When the insurance company denies your claim, things go from bad to worse.
In this article, we'll find out why claim denials might occur, review your options (both as a policyholder and when you make a claim against someone else's insurance), and more.
(Learn the basics of how car insurance coverage works.)
Insurance claims can be grouped into two categories: First-party claims and third-party claims. Let's take a closer look at each.
(Learn more about how to file a car insurance claim.)
A first-party claim is a claim you make against your own insurance policy. You'll typically file a first-party claim when you:
A third-party claim is one you file against another driver's car insurance. After a car accident, you'll likely file a third-party claim against an at-fault driver's liability coverage.
First-party claims get denied less often than third-party claims. Why? Your insurance policy is a binding contract between you and your auto insurer. The insurance company is legally obligated to fulfill the promises it makes to you in the policy. In addition, most states have laws dictating how auto insurers must handle claims from their own policyholders.
When you file a third-party claim, there's no contract between you and the insurance company. The insurer's primary legal obligation is to its own policyholder, not you. You have much less legal leverage over the insurance company when you bring a third-party insurance claim.
Insurance companies deny claims for lots of reasons, and we've listed several of the most common below. In general, though, an auto insurer will deny a claim when it thinks the policy language and the law give it an arguable reason to do so.
While insurance companies (and their lawyers) are experts at using insurance policy language to their advantage, they're far from infallible. You've got options if you think your insurance claim was wrongly denied. We'll talk about those options below.
Here are some of the most common reasons for claim denial:
This list isn't exhaustive. Your claim might get denied for other reasons. Let's consider some of the steps you can take once you get a denial.
The steps you need to take will vary, depending on whether you filed a first-party or third-party claim. But in either case, your first step should be to make sure you get the reasons for the denial in writing. Insurers usually provide a claim denial letter as a matter of routine but if not, don't be reluctant to ask.
If your first-party claim gets denied, here are some typical options:
If the denial letter says that you didn't provide enough evidence to support your claim, provide as much of the missing evidence as you can. This could include a police report, pictures of the accident, repair estimates, or medical records and bills.
If you can't submit more evidence to support your claim, consider filing an appeal or asking for an appraisal from your insurance company. Your insurance policy will describe the steps you need to follow. Be sure to do as the policy instructs, and make sure you meet any applicable deadlines.
Finally, if you find yourself in a situation where you believe there's nothing else you can do, consider bringing in an outside party to help. For instance, you might be able to file a complaint with your state's insurance commissioner. Depending on the circumstances, it might make sense to hire an independent claims adjuster. In addition, think about hiring an experienced car accident attorney.
If your third-party claim is denied, then with the exception of filing an appeal, your options will be similar to those discussed above. Additionally, you might be able to file a first-party claim with your own car insurance company, depending on your insurance coverages.
Unfortunately, when it comes to third-party claims, insurers usually have less incentive to pay you a fair settlement. Nearly all of the insurance company's legal obligations are to its insured policyholder, not to you. If the company won't deal with you fairly, chances are you'll need to think about hiring a lawyer and filing a lawsuit.
If your car insurance claim is denied, it's probably because there's legitimate doubt as to liability or damages. Or sometimes the insurance company just makes a mistake. But in limited instances, the insurance company might knowingly deny a valid claim. If this happens, it could constitute a bad faith insurance denial.
States vary in how they define insurance bad faith, but it typically refers to an insurance company's unreasonable refusal to provide a benefit that's legitimately due under an insurance policy. Here are some of the things that might give rise to a bad faith claim:
If the insurance company denies your claim in bad faith, you might be able to file a bad faith lawsuit. An insurer that acts in bad faith can be liable for damages, possibly including punitive damages. But proving bad faith is a steep hill to climb.
Proving bad faith is easier if you've brought a first-party claim because, under your policy, the insurer owes you a duty of good faith. When you bring a third-party claim, the insurance company doesn't owe you the same duties.
To prove a third-party bad faith claim, you'll need to show fairly egregious misconduct by the insurance company. For example, if the company engages in fraud when handling your claim, you'll be more likely to win a bad faith case.
If your car insurance claim gets denied, your first reaction is likely to be anger or frustration. These are understandable responses. But don't take it personally. To the insurance company, your claim is just a business transaction. Take a deep breath and consider your options.
Your best bet might be to get expert legal help. A car accident lawyer knows how to deal with auto insurance companies, and can guide you through the claim process after your insurance claim has been denied. Here's how to find a car accident lawyer who's right for you and your case.