When an Insurer Will Sue
In general, an insurance company will pay a claim just fine, but there are times when they take the opposite approach. At the most basic level, if an accident happens and both parties have liability insurance that’s up to date, the victim’s expenses get paid.
But under sometimes unexpected circumstances, the insurance company of the alleged wrongdoer may choose to bring suit against an insured. The scenarios vary wildly, but might include fraud or noncompliance with the insurance contract.
If a case has gone to trial after an accident and the verdict is in, the insurance company may choose to sue if they think you’ve committed fraud. Let’s say that you’re involved in a collision, and then you end up in a hospital with serious injuries. You may have had other health problems that you were being treated for, but you go to your regular doctor to see if you have any injuries from the crash. Once those with the accident command financial compensation, some people may exaggerate or fabricate their injuries to collect more money. This type of fraud (i.e. filing a fake claim or making false statements) can require insurers to hire investigators to verify a claimant has suffered an actual injury.
If someone is found to have been defrauding an insurance company, it’s not a good thing. Not only does it open up the possibility of prosecution, but it also means that you could be facing the insurer’s demands for legal fees , medical expenses and a variety of damages.
There are also times when an insurance company may choose to sue you simply because you haven’t kept up your payments. In Georgia, the law is distinctly on the side of insurers when it comes to discrepancies with policy payments. If a client hasn’t paid premiums to the insurance company and it wants to end the insurance contract due to your lack of payment, the company must give you a 10-day notice prior to terminating your policy. Most major insurance companies do this automatically, even if you haven’t paid your minimum or if your premium is short by a small amount. If you’ve gotten one of these notices, you have a good idea of which way your coverage is going.
Another serious situation can arise if the insurer feels that you were in violation of your contract with the insurance company. Every contract has terms, and it’s important to follow them — even seemingly small ones like "don’t race your car." Take, for example, Tom Brady’s speeding incident. As a reported 2006 interview with Boston.com revealed, Brady got a warning for speeding after driving his Aston Martin at 106 mph in a 65-mph zone, but after speeding again in 2007, the state trooper gave a ticket for that and two other unlisted violations. In response, the state tried to suspend his license, at which point Brady had to hire a lawyer to settle the issue.
So while an insurance company might not start a lawsuit on its own, it can be involved in one involving a driver at fault for some reason.
How an Insurance Company Can Sue You
In general, insurers can and do sue their insureds to collect on amounts owed on insurance contracts. If, for example, a serious accident results in the victim filing a lawsuit for damages in excess of an insured’s liability policy limits, then the insurer has the right to intervene in the case to protect its financial interests. Policies rarely define the circumstances under which insurers can recover damages from their insureds, and one of the most common reasons that insurers attempt to recover against their insureds is as follows: when the insured has violated the terms of the policy. An insurer can demonstrate that an insured has breached its contract by demonstrating that the insured failed to cooperate in its defense or engaged in conduct amounting to fraud or willful misrepresentation.
In terms of subrogation claims against third parties, insurers can sue at any time if a third party has caused a loss in an area covered by a policy. Subrogation, like contribution, allows insurers to recover amounts paid out under a policy in situations where the cause of loss also involved negligent or intentional behavior by a covered third party. Insurers have no right to covenant not to sue with respect to a third party unless it was part of the original agreement between the covered insured and the insured third party. As an example, if an auto insurance policy contains covenants not to sue with respect to other covered drivers, then the insurer cannot sue another covered driver for contributing to the loss.
An insurer may pursue its insureds in lawsuits to recover for the following:
• Negligent behavior that led to a loss
• Theft of property and other criminal acts
• Breach of contract and other violations of the insurance terms
• Collection of outstanding premiums owed
• Breach of fiduciary duty to the insurer
• Negligent claims handling and processing
• Intentional misrepresentation and fraud
Subrogation: How It Works and When It Happens
Most people haven’t even heard of subrogation, but for insurance companies, it’s a common reason for them to sue someone following a car accident. Essentially, the process of subrogation helps to ensure that the insurance companies don’t have to pay out on claims that the other driver is responsible for. For the injured party, subrogation is a case of "who pays the bill?" If you’re injured and need to file a claim with your insurance company, they’ll pay the bill, but then conduct their own investigation into who should really foot the bill. People who’ve been injured simply want the bills covered at the time of treatment; if they’re well looked after, they don’t care from which source the funds are paid. For insurance companies, however, their exact concern is who’s paying the bills, therefore they will pursue subrogation in order to ensure that they should have provided compensation and that the other driver is backing up their liability. Subrogation is easily explained with an example. If another driver runs a red light and causes a serious head-on collision, the other driver – whose fault it was – will be held responsible for the accident. Car insurance is there to pay for the damages and the owner of the car that was rear-ended can file a claim with their own insurance company so that they are covered in the meantime. Their insurance company will pay out, and they will pursue the damages from the other driver or the other driver’s insurance company. But to them, the issue is not resolved, and they still want to go after the other driver’s insurance company, therefore subrogation. Subrogation is only usually pursued when the damages are significant and would otherwise cost the insurance company significant money. An insurance company will usually focus on subrogation when there is a reasonably clear liability for the other driver. In our example above, having a clear record of the red light violation, the testimony of anyone else who witnessed on the scene, and having injuries that were a direct result of the accident, makes it pretty easy for an insurance company to go for subrogation. The principle is the same whether it’s a scene of an accident or damage to a property. Only in some circumstances is subrogation exercised unilaterally and on the part of the person who has suffered any loss. Subrogation doesn’t have to be a long process, but like anything else, it can be, and with lingering questions, it pays to have professional help on hand to address them.
Your Obligations and Rights
If the insurance company determines that legal action is necessary, as an insured you have the right to demand that your insurance company:
(i) provide you with a defense,
(ii) control the defense of the case,
(iii) indemnify you for any verdict or settlement, and
(iv) pay all of the damages assessed against you up to the policy limits.
You cannot simply refuse to cooperate with your insurance company’s request for information, do whatever you want to do and hope that the insurance company will fund the cost of your defense. If you do not cooperate with your insurance company’s requests, the insurance company may inform you that it does not wish to insure you anymore . Your insurance company cannot terminate your insurance policy without sending you a written notice at least 20 days before they intend to cancel it. They are required to provide you with this 20 day notice so that you can find another insurance company to insure you if you so desire. However, they are allowed to cancel your insurance policy by mail without first providing you with a 20 day notice if they are cancelling your policy because you lied (committed fraud) when applying for insurance coverage and you failed to disclose past accidents for which benefits were received and charges for DUI or DWI (driving under the influence or driving while intoxicated), reckless conduct or driving while license denied or suspended.
How to Prevent an Insurer from Suing
Ensuring you don’t face a lawsuit from your insurance company after an accident is not a very difficult task, but it requires you to be diligent in reporting any accidents in which you’re involved. Most policies contain a provision requiring you to report all accidents, regardless of how minor you may consider them, so you won’t be able to avoid complying with this requirement.
Insurance companies have a problem referred to as "moral hazard"; because they are guaranteed to pay a specific amount of money for covered events, they have little incentive to try and keep costs low. The result is that if you get into an accident in which you believe you’re at fault, the insurance company may offer to pay the other driver not just the cost of repair, but for the inconvenience and even some of their attorney’s fees. If the other driver accepts this money without filing a claim, the insurance company makes out rather well considering the alternative of having to pay way more than is necessary.
Of course, the damage may be much more severe than you anticipate, and you can be sure the other driver will recoup their expenses fully – including their costs of filing a lawsuit – should they choose to do so. If you don’t submit a claim, the insurance company will handle it as though you have already; they’ll pay their insureds, and they will be forced to come after you out of necessity before they have the option of coming after you for violating that policy term. However, if you file a claim and let your insurance company pay the other driver’s damages and all of their associated costs, that will almost certainly end the conversation right there.
What Happens if an Insurance Company Sues You
When you’re served a summons with a lawsuit against you or made aware by another means of a lawsuit against you, the most important thing you can do is read it carefully.
If you inherited damages caused by a person in your employ, it will state so. If the lawsuit involves property damage, it will state that it’s for property damage. If the lawsuit states that you owe an insurance company money, it will state that you owe an insurance company money. Read it again and again until you understand what they’re suing you for.
Then do the most obvious thing you’ve been ignoring: Call your insurance company. Get a Claims manager assigned and have them set up a time to listen to your side of the story. They may wish to investigate to verify what you tell them, so be prepared to tell a lie-free story and don’t go away until you’re sure you’re done sharing all that you’ve got to share.
If this is a matter of property damage not needing liability to pay for it, it is very likely that the lawsuit goes away once the insurer agrees to pay what the policy states has to be paid .
If you’ve been sued for property and the person suing you wants more than the policy covers, call your insurer and let them know. They may then be obliged to step in and pay your damages and defend you in court!
So what if your Insurance Company refuses to get involved? Well, then you’ve got a real problem on your hands. Either way, no matter how overwhelming and scary it is when you’re served with a lawsuit, your best bet is to read the papers over until you understand them, then call your Insurance Company to speak to a Claims manager until you understand why they’re not covering you in this lawsuit. It’s in your best interest to work closely with them and evaluate your options in a well-informed way. They’re a business. Highlight the fact that settling because it’s cheaper than litigation, and make a case for full compensation because it is how the policy reads. The bottom line is that their profits and yours are inextricably tied together, and you as a team have the math on your side.