Car insurance is likely one of those things you hope to never need. But when you do end up turning to the coverage you've paid for (often for years) after a car accident, you expect to get help with all relevant losses. But what if the car insurance company denies your claim? In this article, we'll discuss why claim denials might occur, your options (as both a policyholder and when making a claim with someone else's insurer) and more. (Get the basics on how car insurance coverage works.)
A claim denial can be total or partial (the latter occurs when the insurer pays a portion of your claim). Simply put, car insurance companies deny claims when they believe they have a contractual or legal right to do so. In other words, they believe all or part of the claim is invalid.
Common reasons for claim denial include:
In the above situations, it's possible the car insurance company properly denied the claim, but any of these kinds of denials might also be erroneous or premature.
If a car insurance company denies your claim, your next steps will depend on the type of claim you filed and the stated basis for the denial.
If you get into a car accident, you will file either a first-party claim or a third-party claim.
A first-party claim is a claim you file with your own car insurance company. You will typically file a first-party claim when you:
A third-party claim is one you file with another driver's car insurance company. You might file a third-party claim when you believe the other driver is responsible for causing the accident.
One of the key differences between these two claims is, all else being equal, first-party claims are less likely to receive a denial. This is because you have a legal contract with your car insurance company that requires it to fulfill the obligations outlined in your car insurance policy. Put another way, this makes you the car insurance company's primary legal obligation. Additionally, most states have special laws dictating how car insurance companies must handle claims from their own policyholders.
In contrast, no contract exists when you file a third-party claim. Therefore, the car insurance company's primary legal obligation is to its own policyholder, not you.
The exact process will vary, depending on what state you're in and whether you're filing a first or third-party claim.
If your first-party claim gets denied, the first thing you need to do is get the basis for the claim denial in writing. Most car insurance companies will automatically prepare a letter outlining their reasons for denying the claim. If they don't provide this letter, make sure you ask for it.
Next, consider filing an appeal or asking for an appraisal from your car insurance company. Your insurance policy will describe how this process takes place.
Finally, if you find yourself in a situation where you believe there's nothing else you can do, you may want to bring in an outside party. This might consist of filing a complaint with your state's insurance commissioner, hiring an independent claims adjuster, or consulting with an attorney.
If your third-party claim is denied, then your options will be similar to those discussed above. One key difference is that, depending on the type of car insurance coverage you have, you could have the option to file a first-party claim with your own car insurance company.
If there is a car insurance claim denial, it is probably either a genuine mistake by the car insurance company or there is legitimate doubt as to liability or damages. 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 tend to vary in how they define insurance bad faith, but it typically refers to an insurance company's unreasonably refusing to provide a benefit under an insurance policy. This can potentially include:
Individuals can bring a bad faith insurance lawsuit against their own or another car insurance company. However, when suing another car insurance company for its bad faith denial of your third-party claim, you will have to prove more egregious conduct, such as the car insurance company engaging in fraud when handling your claim.
If an insurance company denies a claim in bad faith, it could be liable for consequential and punitive damages.
If you believe a car insurance company has improperly denied your claim, it might make sense to discuss your options with a car accident lawyer.