Reasons to File a Lawsuit Against Your Insurance Company
When you purchase insurance coverage, you do so based on the premise that the insurance company will be there when you need it. Unfortunately, this is not always the case. Sometimes, despite paying your premiums and having a valid claim, the insurance company refuses to pay your claim or gives you less than the amount you are owed. Sometimes, the insurance company may delay to the point that the property you are trying to repair or replace is further damaged. Sometimes, the insurance company denies your insurance claim entirely, no matter how legitimate. Other times, the insurance company may argue that your property is not covered at all. There are many reasons for why an insurance company may act in bad faith towards its policyholders, as well as many reasons for why an insurance company may be liable for a bad faith breach of contract.
One of the most common examples of bad faith treatment by an insurance company is a denial or lowball offer made by an insurance company. Suppose, for example, that a tree falls on your house during a storm, causing significant damage. You have a homeowner’s policy with a $150,000 maximum pay out. You and your contractor have an estimate for the damage caused by the falling tree, amounting to $135 , 000. Obviously, you have a valid insurance claim. When you submit your claim to the insurance company, however, the insurance company investigates and finds that the damage is only $75,000. Shockingly, what the insurer fails to mention in its letter to you is that its own engineer was retained to conduct a more thorough investigation and also found the damaged caused by the tree to be $135,000. In this situation, the insurer will have acted in bad faith if it willfully fails to investigate your claim, adopts the lower estimate as the offer, and/or because it made a factual assertion that was false. If you were to challenge this denial or lowball offer in court, the jury would most likely find that the insurance company had breached its contract with you. The result would be threefold. First, the insurance company would have to pay for the damage like it was supposed to in the first place. Second, if the jury found that the insurance company acted in bad faith, the jury could award punitive damages against the insurer (which is why you sometimes hear that parties pray for punishment damages). Finally, a finding for the policyholder could potentially make it so that other policyholders will not be taken advantage of in the same way.
The Litigation Process to Sue an Insurance Agency
Filing a lawsuit against your own insurance company is technically a breach of the contract they offer you. So, what do you do when the insurance company breaches the contract first? In some cases, filing a lawsuit may be your best option. Frankly though, it really should not be the first option. Your options should include mediation and arbitration alternative dispute resolution solutions.
If you have to file a lawsuit, an attorney will first draft and file a complaint (which is literally called a "complaint") with the court.
The complaint will include a demand for what you are due by contract, also called the "relief sought." The complaint may also sue other parties responsible for the damages and assert other claims. It may also include a list of witnesses you want to testify at trial and copies of all documents you have related to the claim.
Once you file a complaint against the insurance company (and sometimes against others like the building contractor or a neighbor), your insurance company will "answer" the complaint (sometimes called a petition) by filing their response to the complaint in writing with the court. If they don’t, the court can enter a default against them.
The insurance company will have time to investigate your claim and get documentation from you. They may also ask the court to dismiss the case or they may seek a dismissal on your behalf so you can use the courts mediation process to hopefully get the claim awarded to you.
If the insurance company denies your request for mediation or asks the courts to dismiss the case, you may end up with a "summary judgment" meaning you can skip ahead to the appeal. Or you might just find yourself with a trial date.
Most likely you will end up with a trial date, and you will need to show up and tell the judge why the insurance company breached its contract with you. That means bringing in all your documents and your witnesses to testify, including the insurance claims adjuster.
In addition to family and friends who have knowledge about the incident, you should consider hiring an expert witness who will discuss your claim with the judge and jury. Of course, that will increase your legal bills.
Once you go through the whole ordeal of preparing for the trial, you will have your day in court, and a judge or jury will make the decision.
The litigation process can take quite a bit of time, but if your policy is worth fighting for, it just might be the most important thing to do.
Possible Outcomes of the Lawsuit
The outcome of a lawsuit brought by an insured against his or her insurance company can take many forms. Most commonly, the case is either dismissed or a judgment is rendered in favor of the insured (whether the judgment is for the amount originally claimed or some lesser amount). Even absent a full-blown trial, however, the case does not always start and end at the courthouse.
Sometimes, when the suit begins, the parties reach an agreement before the lawsuit proceeds to trial. For example, after you file your claim and then file suit, you can try to settle the case before or after you have the opportunity to attempt alternative dispute resolution or mediation. Alternatively, even after you’ve been dismissed from your lawsuit, you may still be able to prove your right to a settlement payment from your insurance company in small claims court. Of course, it is possible for the parties to reach a settlement after the case has reached a certain point in litigation, such as the opening of discovery or after any number of other deadlines have been passed.
If the case is dismissed, either through a summary judgment, a motion to dismiss or otherwise, you might be entitled to file an appeal. Alternatively, if you win your case at trial, your insurance company may decide to appeal that ruling.
The Pros and Cons of Suing Your Insurance Company
Suing Your Own Insurance Company: The Risks and Rewards of Suing an Insurance Provider
Before filing suit against your insurance company, it is important to consider the risks involved. Suing your insurance company is a two-edged sword. Pursuing your claim will be very expensive and it may a long time before you get the money you are owed, if at all. What you need to consider is whether the money you believe you are owed versus the cost of bringing the lawsuit is worth it to you.
For instance, if your contract with your insurance company states that you are entitled to $200,000 to replace your roof, but your insurance company is only willing to pay you $30,000, you may have to weigh the pros and cons of bringing a lawsuit with legal action. The lawsuit is going to end up costing you a lot of money, because it will require that the case be brought both in state and federal courts. That money might be better used for sprucing up your home before you plan to sell it.
On the other hand, if your case is severe and requires immediate attention , the return on your investment might be worth it. In addition, if your investigation has revealed evidence that your roof was damaged by a storm, fire, or negligence, then you should seriously consider suing your insurance company, because you have a right to receive a premium return on your insurance dollars.
So, which is the right choice? That depends on your own personal situation. Below are some possible scenarios.
A severe crisis requires that you seek compensation
An insurance company’s behavior is starting to leave a sour taste in your mouth
A severe payment needs to be made to compensate for damages
A lawsuit is not as likely to end with any positive outcome
It’s not safe to assume that just because your insurance company hasn’t treated you to the best of its ability that it is wise to pursue it in court. First, you’ll be required to prove that you were indeed underpaid. The amount you are claiming should be roughly equal to what reasonable people in your area would charge a customer.
How to Prepare for Filing A Lawsuit Against an Insurer
Sometimes there is simply no choice but to sue your own insurance company. If this happens the first step is to give your insurance agent a chance to help. Ask him/her to meet with you and write a denial letter on your behalf. Sometimes your agent can use his/her buying power with the insurance company to get the policy interpretation or settlement you deserve.
If that does not work or if you do not have an ins. agent, the policyholder’s next step is to retain an attorney to prepare the case. The attorney will then make a more formal demand for the respect and care that the policyholder deserves. A lawsuit should only be filed against the agent and/or insurance company as a last resort.
A policyholder may ask, "But, what if the agent refuses to help me?" or "What would be an example of a refusal?". In those cases where the agent’s refusal is justified, a policyholder will not be able to force the agent to do something for them. In any event, some policyholders will say they trust no one and already feel betrayed. They may not even want to present the problem to someone else. For those policyholders, either lawyer support before filing a suit or court assistance after filing a suit is essential.
If a policyholder sues their own ins. co., they should prepare for game day. They should collect as much evidence as possible to show the insurance company acted in bad faith. Having a complete file of correspondence strengthens your chances of winning. Also, have a legal team behind you to take on the insurance company. You need the most experienced lawyers on your side to handle your case.
Out-of-Court Options
Litigating against your own insurance company is not always necessary but many policyholders do not know the alternatives that might be available. To better understand the alternatives to litigation it is important to understand the factors the carrier will consider when determining whether to pay your claim.
Your carrier will consider dignity and pride when determining whether to settle your claim. In contrast, they will argue that pride and dignity should have no role in their decision to pay your claim. I agree that pride should have no role in their decision. That is why I call baseless denials "unsettled core issues." Your carrier will also consider the amount of money at issue in your claim. They know that if your claim is less than the cost to litigate you will settle. Because your claim is less than the cost of litigation the insurer can take a chance on you going away mad. In fact, for most policyholders attorney’s fees are not available to litigate a claim. Another factor the carrier will consider is how badly you need money. Some policyholders need money badly (either physically or psychologically) but do you need money badly enough to engage in the rigors of litigation? Do you have the fortitude to fight the small claims amount when the carrier made a business decision to deny such an unreasonable amount? If the policyholder can withstand the mental rigors of litigation then they should consider one of the alternatives below. The first alternative is settlement discussions. If you have a knowledgeable and competent advocate seeking a modest recovery in a claim dispute with your insurer you should consider settlement. Some insurance companies (especially the good ones) know when they are dealing with an advocate that knows the law , knows the policy language, and knows how to litigate (trial attorneys). Carriers can sometimes be persuaded to evaluate the evidence fairly and make a reasonable settlement offer based on the evidence presented. Negotiation is a settlement discussion. The next alternative to litigation is mediation. Mediation is a term used to describe a form of alternative dispute resolution. A third party (which can be a lawyer, a retired judge, or even a mediator) will attempt to resolve your claim. The mediator will be neutral during these discussions (unless they are a hired gun for the insurance company) and will facilitate a discussion between the parties. Many courts require this type of alternative discussion prior to filing a lawsuit and some policies require it prior to filing a lawsuit as well. By engaging in mediation, the policyholder can hopefully resolve their claim in a cost efficient manner. The final form of alternative dispute resolution in a lawsuit is binding arbitration. If your policy contains an Arbitration provision then your only option for a binding resolution may be arbitration. Like mediation a third party will attempt to resolve the claim. Unlike mediation an arbitrator’s decision can be final. Parties typically agree to be bound by an arbitrator’s decision (like a judge) prior to starting the process. Arbitration is a legal proceeding in some respects that follows procedures like a lawsuit. If you are required to go to arbitration your attorney should guide you through the process. If you choose to go to arbitration on your own, hopefully this will give you a basic understanding of the process.