When is it Time to Sue Your Insurer?
For most people, their relationship with their insurance company is transactional in nature. But if an insurance company wrongfully refuses to pay a claim, or delays payment or offers less than the value of the claim, it suddenly becomes a personal — and expensive — relationship. The good news is that policyholders have significant rights in these scenarios.
There are three major circumstances under which a policyholder may sue an insurance company for coverage on a claim, or for coverage in a collision case:
- Breach of Contract – A contract requires both parties to do what was agreed to in it unless both sides agree to do something different. When an insurance company says "promise kept" to an insured, but then proceeds to act in a contrary way, it has breached the agreement (the contract). A breach of contract lawsuit is one that essentially tells the insurance company it’s in breach of contract, and it owes money to you.
- Delayed Payment – If an insurance company agrees to pay a claim (because it is clearly covered under the terms of the policy), but does not pay in a timely manner, it has delayed payment. A lawsuit may be filed against the insurance company for breach of contract, and/or for breach of the implied covenant of good faith and fair dealing . If a policyholder requests payment for a minor claim that is likely covered, the insurance company may pay the claim within a few weeks. If payment is not made by the insurance company within a reasonable time or if the payment is not for the full amount of the claim, then the policyholder may have an action against the insurance company for breach of contract and bad faith.
- Denial of Claim – If an insurance company denies a claim that is clearly, or reasonably, a covered loss under the insurance contract, then the policyholder may have a cause of action against the insurance company separately and apart from the breach of contract, because the insurance company has breached the implied covenant of good faith and fair dealing. A good faith breach occurs when the insurance company denies or delays a claim, or where the pay its claim for a lesser amount than is owed.
If the insurance company fails to timely pay a claim, the policyholder should send the insurance company a letter demanding payment and asking why there was a delay in payment of the claim. Even if the letter is not required by law, it shows that the policyholder was trying to resolve the issue in a reasonable manner (which is required under the law). If the insurance company does not pay the claim after it receives the letter, then the policyholder may have a cause of action for bad faith.
How to Bring an Insurance Lawsuit Against Your Insurer
The first step in filing a lawsuit against your insurance company is to remedy any deficiencies in the insurance claim process by attending to all of the required conditions precedent outlined in your claim’s contract policy or state’s "bad faith" adjustment statutes, if applicable. A failure to first address these requirements before commencing litigation will cost you precious time and may even forfeit your right to sue.
Assuming the preceding conditions are met, the next step is to put together the evidence in support of your breach of contract or tort claim for unpaid benefits. Gather and catalog all of your documents. Organize the records into separate folders and stacks. Scan the documents into readable pdf format. Redact and mutilate the copies of privacy related documents. When work is completed on your claim, carefully file it away in an accordion style file or large binder for ink jet copies.
Claims files must include the following items: (1) all communications between you and the insurance company; (2) all medical records, bills and payment documents; (3) all receipts and expense documentation; (4) all letters between you and insurer regarding denials, payment of benefits and other correspondence; and, (5) trial exhibits. This file may be supplemented during the course of the litigation after you commence an action.
Once you have assembled your file, consult with an insurance attorney to discuss whether the insurer’s conduct constitutes a viable basis for litigation. Your counsel will assess the factual and legal issues, and the extent of damages suffered. If your case is worth pursuing, then, your lawyer will either serve a letter of representation or file a summons and complaint within the statute of limitations period. Your insurance claim may file in small claims, civil, state, federal or bankruptcy court, as appropriate.
If your case is litigated in state or federal court, then, your breach of contract or tort claim may survive or be defeated via dispositive motions, such as a motion to dismiss, judgment on the pleadings, summary judgment or a motion for judgment on the pleadings. If it survives these hurdles, then, you proceed to trial on the merits of your claim. If your case survives the inevitable appeal(s), then, you can expect to recover damages, including consequential damages, statutory damages, punitive damages, attorney’s fees, costs of suit, interest and/or declaratory relief, if appropriate.
Legal Issues that May Arise in an Insurance Lawsuit
In addition to the challenges of overcoming the defenses of an adversarial insurance attorney, plaintiffs must also contend with the legal restrictions outlined in their policy. Many policies stipulate that disputes must first be submitted to formal appraisal before a lawsuit can be considered. Further, the bulk of complex legal terminology in insurance lawsuits is not transparent to the average consumer, which can make navigating procedural requirements complicated. This does not mean that any barrier or disagreement makes a lawsuit impossible. It simply means that the guidance of a knowledgeable attorney is strongly recommended, as insurance companies will use any legalistic loophole present in a case to deny coverage. Your attorney can help you understand the legal language in order to navigate around the hurdles employed by the insurer. When a lawsuit progresses, the insurance company will launch a barrage of counter-arguments and defenses. A claim of lack of jurisdiction may be filed to avoid a trial. Insurers have also been proven to file such claims in bad faith, which may encourage litigation against them. Defensive strategies may include arguments that a case should be dismissed if the insurer did not violate the insurance contract or that a case is premature due to an ongoing appraisal or mediation process. At the end of the day, it is vital to note that the specific details of each case play an important role in any ensuing lawsuit. It is also crucial that a client becomes informed about the litigation process so that he or she knows what to expect.
How to Hire an Attorney to Represent You Against an Insurance Company
When pursuing an insurance claim, it is crucial to choose a lawyer who has a deep understanding of insurance law and the strategies used by insurance companies. This is particularly important in a first-party insurance dispute against a home insurance company. Here are some things to look for when considering candidates to handle your insurance dispute: A good attorney for your case should have experience in suing insurance companies like yours in the past. Without experience in the area you need help with, a lawyer will not be able to be as effective as someone more experienced. You should ask attorneys during consultations if they have handled suits against your insurance company before or if they have represented clients who were in a similar circumstance to yours . The best attorney for the job will know the insurance company’s tactics and respond accordingly, providing you with legal representation that will be as strong as possible. A lawyer’s track record of success on similar cases is also an important piece of information to consider. A good attorney will easily be able to provide you with a spreadsheet listing their cases and the results of those cases. If you do not get a solid positive response to the questions above (or if you suspect you may be kept on the back burner), continue your search for law firms until you find one you can easily trust to succeed in your case.
Possible Results and What to Expect
As with most things in litigation, there are a variety of outcomes that can occur. The endorsement of one of a thousand insurance contracts might render the amount to be paid by the insurer moot. The lawsuit might be resolved at mediation or during a motion for summary judgment. The case may not be over until a court of appeals affirms the trial court’s judgment.
Settlements are by far the most common way to resolve an insurance coverage lawsuit. Many times, settlement discussions begin during the initial stages of a lawsuit. Early settlement eliminates the uncertainty, cost, and time of expensive litigation. Sometimes, the parties do not begin settlement discussions until after discovery is completed. Even so, an early settlement is possible at any point in the litigation.
Many times insurance claims adjusters and defense attorneys will make attempts to resolve the case early in the litigation only to be unsuccessful in doing so. Posturing by defense attorneys and insurance company claims adjusters requires policyholders to incur substantial legal fees and build leverage before the case settles or the insurance company takes a position that results in a judgment.
Settlement terms can vary based upon a wide range of factors, including the identity of the parties, the nature and extent of injuries to the policyholder, and the cost of repairing damaged property. The insurance company might agree to pay its policy limits, or an amount less than that in a structured settlement. Actual attorneys’ fees may be included in the settlement agreement.
If your insurance company agrees to resolve your case, it will likely demand a full release of any and all claims against the insurer in exchange for settlement funds. If your case is tried, then there can be a number of different outcomes. The policyholder may win and receive the amount of damages requested in the pleading. The policyholder may also win but receive an amount less than requested in the pleading. The award might be less that the amount sought under the policy. The jury could find that the insurance company’s conduct was not bad faith despite the policyholder being awarded damages under the policy. Policyholders may even seek to recover punitive damages if the jury determines the insurer acted in bad faith. A jury’s verdict will be reduced to judgment, and the policyholder will recover any pre- and post-judgment interest.
The policyholder may lose and receive nothing. If money is awarded to the policyholder, there is also the possibility that the insurance company will appeal. Even if the insurance company loses, it might still appeal. The appellate process, especially in Florida, may take years due to Florida’s mandatory mediation and appellate mediation programs. The appellate courts may sua sponte order mediation in the appellate level as well. A federal lawsuit can last for years before getting to the point of resolution.
The process is cost and time intensive both financially and emotionally. In the end, the policyholder’s claim should be paid or resolved by the insurance company. Depending upon the outcome and the claims adjuster responsible for the claim, the insurance company will mediate through and pay the claim or deny the claim altogether. Even though insurance policies contain coverage that is mandatory under Florida law, policyholders still have to fight for money that is owed to them.
The value of the case to the policyholder is often not what the first judge thinks it is after the hearing on the insurance company’s motion to dismiss the policyholder’s lawsuit. That first judgment is just an order to take a step forward and hope that the insurance company will agree to do the right thing. There is value in knowing your rights.
How to Prevent Legal Disputes with Your Insurer
To potentially avoid legal disputes with insurance companies, policyholders are encouraged to take some proactive steps. For example, it is important to have a clear understanding of the terms of an insurance policy and know how to file a claim under that policy. In addition, policyholders should regularly have open lines of communication with their insurance agent in case of an emergency . Furthermore, policyholders should promptly report any incidents or accidents potentially covered by insurance to the insurer. By being proactive and informed about their insurance policy, policyholders can increase their chances of getting their claims paid without having to resort to litigation.