Insurance Denial Explained
Denials can happen for a variety of reasons, but they often fall into 3 major categories: misunderstanding, policy limitations, or bad faith practices.
Misunderstanding: Sometimes the administrative staff at the insurance company simply fails to communicate the truth about your coverage. For instance, if you are claims covered, some customer service agents may not be aware of that and respond to your claim as if you do not have coverage. Similarly, claims of coverage for damage or injury under a separate section of your policy may be miscommunicated by staff unaware of the intricacies of your policy. This does not make for an ideal work environment, but sometimes customer service staff simply do not know the ins and outs of the policy, and that becomes a misunderstanding.
Policy Limitations: Every policy has limitations, exclusions, or conditions that apply to the coverage the policyholder thought they had purchased. These can be common in specialty insurance policies. Auto, home, and worker’s compensation insurance policies are generally fairly straightforward. Things like property insurance are much more complicated , and sarcastically known as "non-owner insurance". Many times, even if you are making a good faith effort to file a legitimate claim, it will be denied if it falls under the limitations in the policy and the insurance company will notify you and outline those in the denial.
Bad Faith Practices: Insurance companies have a legal duty of good faith to uphold their end of the bargain and be fair to insurance policyholders. When insurers put their own interests first and benefit themselves at the expense of policyholders, it is known as bad faith practice. Sometimes, insurers intentionally misrepresent their coverage, which is illegal under consumer fraud laws and could expose insurers to significant penalties and damages. It is difficult to prove, but if you suspect this is the case, you should contact an experienced attorney to investigate on your behalf.
No matter the case, if you believe you have a good faith claim, you should contact an attorney and ask about your lawsuit options and filing a lawsuit against your insurance company so that you can recover what you are rightfully owed.
When To Sue
When deciding whether to file a lawsuit against an insurance company, there are several scenarios to consider. You can usually commence an "action for declaratory judgment" in the following situations:
Unreasonably Delayed Payments
Your insurance company will not cut you a check for your claim. Instead, it keeps dragging its feet and holding up payment of money to you.
Example: You had a fire on January 5th. Your policy requires your insurance company to pay the loss within 40 days. The insurance company still hasn’t paid for covered losses, even though you put your insurance company on notice on January 7th!
Example: You submit a claim for an insured loss on January 5th. Your insurance company sends an adjuster to inspect the loss on January 10th. The insurance company pays you the full amount of covered losses on January 25th. Does your insurance company need to pay you interest on the proceeds of your insurance policy? It is reasonable to ask if the insurance company "held up payment" between January 5th and January 10th. If your states requires interest on insurance claims and payment, you can ask your insurance company to pay interest on the claim. It is wrong and unreasonable for an insurance company to only make partial payments of claims.
The Wrongful Denial of Coverage
Your insurance company denies coverage when you have plenty of coverage for your claim. This should never happen. Unfortunately, it does happen frequently.
Deceptive Practices
Insurance companies charge you a higher premiums and then deny coverage. Sometimes, insurance companies trick their customers into dropping their coverage on certain losses so that the insurance company can collect a higher premium in exchange for dropping the coverage on the loss. In other instances, insurance companies fail to disclose important information about your insurance policy.
Getting Started Before a Lawsuit
In many cases, the first step in the claims process is to interpret your policy and scope the benefits provided. We also look at what is owed. Said another way, we will review the provisions of an insurance policy to determine what should be paid and when. Even more remote a possibility than a favorable resolution after a lawsuit is that a lawsuit will get you a favorable resolution. A lawsuit is a pretty blunt instrument for settling a claim with an insurance company. It can create the hope that they paid your claim wrong and so once a Judge decides, they will pay you pretty immediately. The reality is that insurance company lawyers will tie you and the case up for longer. So why do people file lawsuits against insurance companies? First, because sometimes it is the only option. Second, some cases need to go to trial to get a result. When the insurance company refuses to even discuss settlement of a reasonable claim, there is sometimes no real alternative but a lawsuit in order to collect some or all of the benefits due and owing. Before filing a lawsuit, the first thing I recommend is reviewing the terms of your insurance policy to determine what you are being offered by the insurance company and whether your policy actually provides for those benefits and in what amount. In most situations, the policy will provide more benefits and money than that offered and the insurance company should be able to afford to pay those amounts. Next is to assemble evidence supporting your claim. Evidence often consists of statements from witnesses, treating doctors or other medical professionals related to your treatment and the injury, property damages evidence and photographs of damage, video witness interviews, business records or company records supporting your recovery or losses, photographs, charts, graphs, texts messages, emails, etc., to support your claim. Ultimately, if all else fails, the last resort is to file a negligence complaint and request a trial to determine a sum equal to fair compensation for full satisfaction of the claim.
Navigating the Legal Process
Filing a lawsuit against an insurance company is not a simple process. While the circumstances may vary depending on the specific claim your attorney is pursuing on your behalf, the general legal process will be similar. Your case will start by the attorney filing a complaint against the insurance company in question. A complaint simply states the legal reasons why you are suing the insurance company.
The insurance company will then be served with a copy of the complaint and will have a limited amount of time to file their answer. In the answer, the insurance company responds to each allegation that you have made against them. From there, several different actions can be taken. The case may go to trial if the insurer does not agree to a settlement offer or they may simply refuse to continue negotiations.
Many different elements go into considering whether or not to take an insurance company to court. To a degree, the severity of your injuries and loss will certainly determine the next course of action. If they have offered you a significantly low settlement, going to court may be your best option. However, there are many factors that will be considered that could affect the outcome of your lawsuit. Many times the issue of whether or not to go to trial will depend on the type of coverage you had at the time of the accident. This will be revealed during the discovery phase of the case.
During the discovery period, both parties exchange information regarding the conditions surrounding liability and causation. Namely, this means any information pertaining to the accident, medical records, claim details, witness testimony, and any evidence that supports your claims will be shared.
Most insurance companies tend to delay cases as much as possible. For the attorney, this means an increase in expenses. A significant consideration, especially when deciding whether or not to take an insurance company to court, is the amount of time it will take to get to trial. Several months, if not years, may pass before the case actually goes to trial.
Many times there are complex medical issues involved in these types of cases and that requires bringing in an expert witness. This prolongs the trial even further and can be drastically time consuming. In some cases, simply getting a claim adequately reviewed can take months. There is also pressure from the insurance companies to settle outside of court. Settlement amounts are negotiated and insurance companies often use the information they obtain through discovery to adjust their strategy for settlement negotiation.
Finding the Right Attorney
Hiring an attorney who knows the law and understands the complex business of insurance claims is crucial. A qualified attorney will not only answer your questions, they can also strengthen your case by providing you with expert advice to avoid missteps and making sure that you take all the right steps in order to obtain the best possible outcome. When you hire an attorney, you should look for one who has experience in handling cases where policy holders have had to sue their insurance companies to recover the compensation they deserve. A lawyer who has spent time handling insurance claims not only knows the law but has a first-hand understanding of how insurance companies work. They know the methods these companies use to deny a valid claim, minimize the damages, and often unfairly delay issuing payments. Experienced attorneys can spot these strategies and use their expertise to help you obtain the compensation you deserve. Choosing the right attorney also means choosing one who is well versed in media coverage and case reporting. A qualified lawyer will provide the insurance company with a "demand letter" that outlines the details of your case and demands a certain amount of money in damages. A skilled attorney will use this letter to request a specific amount of compensation based on the damages you have suffered, while also collecting evidence such as receipts and other paperwork and communicating with witnesses to re-construct the facts of the case as effectively as possible. Taking all of these actions is important because they make it more difficult for the insurance company to claim that the amount you are demanding is exaggerated or unwarranted. An experienced attorney will have all of this information firmly in place when he or she files a lawsuit. An attorney will also keep in touch with you and guide you through the process when collecting information. Attorneys also consider whether or not an existing precedent has been set for similar cases. The amount that an insurance company must pay in damages can vary widely depending on whether or not previous cases were ruled in favor of the policy holders. If there is a pattern or a repeated ruling in favor of policy holders, an attorney will use this as leverage against the insurance company to help secure a larger payout for you.
What are the Possible Outcomes of The Case?
If you successfully prove your case against an insurance company, you will most likely obtain a settlement or a verdict in your favor. However, not all outcomes are favorable when you file a lawsuit against an insurance company. It is possible that you may end up with an unfavorable result, or the possibility of the case being dismissed entirely. The most desirable outcome of filing litigation against an insurance company is obtaining a settlement. Insurance companies usually prefer to settle outside of court, as settling saves them a considerable amount of time and money. Not only that, but insurance companies also know that they will be required to pay out the judgment once a verdict is handed down, because there are no appeals when a settlement is reached. This means that when a settlement is reached, the insurance company won’t have a chance to appeal, and will have to pay out the settlement immediately. Sometimes, the plaintiff and the defendant’s insurance company will jointly agree to forgo trial for mediation . A less than desirable outcome of an insurance litigation process is a verdict. This process will take a considerable amount of time, and will be costly because of the high expenses associated with filing a lawsuit. This process can also be physically and mentally stressful. Once a verdict is decided, even if the verdict favors the plaintiff, the defendant will have the opportunity to appeal the decision, delaying the payout further. Fortunately, an unfavorable outcome is often hard to come by, especially in the case of torts such as auto accidents and premises liability. The possibility of a case being dismissed is likely because the case may be lacking substantive merit. It is important to work with an experienced attorney to reduce the chances of this occurring. The attorney will file a lawsuit with a valid claim which has merit in court. Because the majority of lawsuits that are filed against insurance companies are valid, and parties usually reach a settlement, an unfavorable outcome is rare.
Costs and Risks
Suing an insurance company can be expensive, and the costs are not limited to the hiring of legal counsel to represent your interests. If you intend to file suit, you will most likely need experts to testify about the nature of the damages you sustained. For instance, in a property damage lawsuit, the experts would include a contractor to assess your home damage and possibly a meteorologist to interpret the storm data; in a personal injury case, the plaintiff would need medical expert testimony to establish the nature of the injury and its correlation to the incident; in an insurance bad faith suit, a rate-making expert would be needed to testify about how the insurance company’s refusal to pay – or the amount they offered to pay – was inconsistent with what they would do to others insured by the company.
After the filing of written discovery (requests for admission, requests for production of documents and interrogatories), the taking of depositions of the parties and possible non-party witnesses will be required, and potentially, the obtaining of expert witness depositions and attending any hearings before the Court. Though not generally practical, your personal attendance or attendance by your representatives will be required at trial. The time commitment can require years of your time if the case is contested. Even if you win, you may not obtain full recovery of your costs. Under the Texas Insurance Code, the party prevailing in an insurance claims-related dispute shall be awarded reasonable and necessary attorney fees from the opposing party. However, the term "award" is not defined, and there is little Texas case law discussing the scope of this provision. It may be limited only to the fees related to the work performed on the specific claim or the entire case may be considered. Again, this remains to be resolved by the courts in Texas, but for now this would indicate that substantial out of pocket costs may still be incurred.
Emotional and time-related costs are also mandatory and often overlooked. Suing an insurance company can take a toll on the psyche. Cases that are contested can require lots of pressure on your part to produce documents and give testimony, all at a time that you are facing the emotional toll of the damage the conduct caused. That being said, the time commitment can be worth it. For those who are able to mitigate the financial cost, access to the Court system allows you to obtain compensation you might not normally receive. For example, the Texas Trucking regulations require that an 18-wheeler driver must stop so many minutes after his last change of duty (hours of service) and he must mark his log accordingly. Failing to stop as required is evidence that the driver was tired, thus unsafe and actively violating the law at the time of the accident. This evidence when combined with testimony from your accident reconstruction expert can establish both negligence and gross negligence. If the Defendant’s insurer could have and should have settled at a discount, but the actual recovery at trial exceeds the insurance company’s attempts to settle for a lower amount, a potential windfall recovery of up to three times the amount of the total judgment, court costs and reasonable and necessary attorneys fees could be available.
Real Cases and Examples
In 1994, a group of restaurant employees in Texas sued Travelers Lloyds Insurance Company for refusing to pay for damages caused by a fire – despite the company’s knowledge that the fire was caused by their own inspector. The case was settled out of court for an undisclosed amount.
In recent years, the Social Security Administration has paid out millions of dollars to settle claims against private insurance companies for failing to adequately process disability applications and pay out benefits. These settlements have drawn national attention as the agency has sought systemic changes within private companies. A 2016 federal report found that one-third of disability claims examined were unlawfully denied.
In 2011, the Nestle Corporation filed a lawsuit against its insurance company Zurich American Insurance Company after the company refused to cover costs related to allegations of child labor practices in the cocoa industry. The suit sought both damages and a declaration that the insurer was obligated under their contract to cover the allegations, which the company had a duty to investigate. The parties eventually reached a settlement.
While an insurance company’s refusal to pay out on a claim is the most common reason to consider legal action, there are many other examples of lawsuits stemming from disputes between policyholders and insurance companies.
Ways On How To Avoid Litigation
The best way to avoid filing a lawsuit against an insurance company is to make sure that you have a good relationship with your insurance coverages prior to a loss. I have represented many clients that insist their insurance company was refusing to pay their claim for a loss. These clients seem shocked and surprised when they learn that they did not have insurance coverage for the loss. Just because a company sold you a policy, does not mean that you are covered for the loss of your claim.
It is important to read and understand your insurance policy. I know we are all busy and it’s hard to find the time to read through all those pages, but understanding your insurance policy will give you a greater understanding on the limitations of your policies. There might be exclusions of coverage that you need to know about . For example, what happens if the home is vacant for more than 30 days? What happens if the home is rented out to a tenant? Is rental reimbursement coverage available to pay for a place to live while the home is being repaired?
For these reasons of why it is important to read your policies, I suggest that my clients contact their insurance agent to go over their policies with them at least once a year. This allows for good communication between you and your agent, so that the agent can make recommendations to add coverage as the use of your home changes.
If you are familiar with your policies, you will have a better understanding of what your coverages are. Therefore, you will be prepared to provide your agent with any information they require to process a claim. You will know upfront that you do not have business property insurance coverage for a home office. This will allow you to remove the business property from the home, and replace it without having to fight with the insurance company over the value of the business property lost in the fire.