Purchasing insurance provides financial protection and peace of mind in case something goes wrong. You expect your insurance company to cover you if you experience a covered loss. But could your insurer actually sue you instead?
It may seem counterintuitive, but in certain situations, an insurance company can file a lawsuit against their own policyholder. These cases typically involve declaratory judgment actions regarding disputed policy coverage.
Below we will look at when and why an insurer might sue their insured, how to respond if you’re sued by your insurance company, and steps for determining if you need to take legal action against them.
Why Would My Insurance Company Sue Me?
Insurance policies are legal contracts containing all the details of your agreed-upon coverage. Most of the time claims get paid smoothly based on the policy terms. But disagreements can arise regarding:
- Whether your claim meets the criteria for coverage
- How much compensation the insurer is required to pay
- Who is responsible for the loss
Rather than denying your claim outright, your insurance company may file a lawsuit seeking a declaratory judgment from the court on the disputed issues. This asks a judge to make a legal determination about the parties’ rights and obligations under the policy contract.
Some common coverage disputes that prompt insurers to sue their policyholders include:
Most often, declaratory judgment cases involve disputes over liability insurance coverage after the policyholder gets sued. For example:
A customer slips and falls in your business, sues you, but your insurer argues the incident isn’t fully covered under your policy.
Your dog bites a passerby who sustains injuries and makes a claim against your homeowners insurance, but the company alleges the dog’s breed is excluded from coverage.
In these situations, the insurer may file a lawsuit declaring they are not contractually obligated to defend or indemnify you based on their interpretation of the policy language and circumstances of the incident.
Ambiguous Policy Provisions
If certain clauses or wording in your policy seem unclear or contradictory, that ambiguity could lead to disagreements about coverage that end up in court.
Questions About Claim Value
Your insurer may believe you are exaggerating your losses or inflating the value of your claim. To avoid overpayment, they could petition the court to determine the actual amount they are required to compensate you.
Failure to Disclose Information
Insurers can sue for rescission of your policy if they find you omitted or misrepresented material information when applying for coverage. They will ask the court to void your policy based on the alleged concealment or falsehoods.
Non-Compliance with Policy Conditions
Your insurer may argue they are freed from covering your claim if you failed to satisfy certain policy conditions like paying your premiums on time, notifying them of changes or losses promptly, cooperating fully with any investigations, or maintaining adequate documentation.
If your insurer believes you intentionally falsified or staged a claim or loss for financial gain, they can pursue legal action to deny the fraudulent claim and potentially terminate your policy altogether.
What Should I Do if My Insurance Company Sues Me?
Being sued by your own insurer can be upsetting, frustrating, and confusing. Here are important steps to take if you find yourself in this situation:
Read the complaint carefully. Make sure you understand exactly what issue(s) your insurance company is asking the court to resolve regarding your policy or claim. Does it involve a coverage denial, dispute over claim value, allegations of fraud, or something else? The complaint should explain their reasoning.
Notify your insurance agent. Contact your agent to alert them that the insurance company is pursuing legal action against you and ask them to assist in resolving the dispute if possible.
Consult an attorney. Work with an experienced insurance lawyer to formulate your response strategy. They can examine your policy, review the facts of your claim, and build a legal argument to counter the insurer’s position. Having skilled legal representation increases your odds of a favorable outcome.
File an answer. To avoid default judgment against you, make sure to formally answer the complaint within the required timeframe, either pro se or through counsel. Dispute any inaccurate facts the insurer alleges.
Comply with court rules. Follow all relevant procedural rules, requirements, and deadlines throughout the case. Attend any scheduled hearings, mediations, etc. Failing to engage with the process can hurt your position.
Consider settlement. Your attorney may advise trying to negotiate a settlement, depending on how strong your position is versus the insurer’s. Settling could provide a quicker resolution without leaving the decision in the judge’s hands.
Prepare your argument. Work closely with counsel to gather persuasive evidence and testimony to support your version of events and interpretation of the policy. The stronger your case, the better chance of defeating the insurer’s declaratory judgment action.
With the right legal help, you can overcome your insurance company’s attempt to deny your claim through litigation. Don’t let them bully you into accepting an unfair judgment.
When Should I Sue My Insurance Company?
Taking legal action against your insurance provider is usually a last resort after other resolution attempts have failed. But there are circumstances where suing your insurer may be warranted to recover financial damages caused by their conduct.
Common reasons policyholders end up suing their insurance companies include:
Wrongful denial of a claim – Refusing to pay a legitimate covered claim without just cause is bad faith.
Delayed payout – Dragging their feet on paying you for a validated loss can result in further damages.
Unreasonably low settlement – Trying to force you to accept a settlement that grossly undervalues your covered losses and injuries.
Rescission of policy – Improperly and retroactively canceling your policy despite you meeting all provisions.
Failure to defend – Refusing to provide legal representation against a liability lawsuit as promised under the policy.
Failure to fully investigate a claim – Not adequately looking into your reported losses and request for compensation.
Misrepresentation of policy terms – Lying or misleading you about coverage scope, limits, exclusions or other provisions.
Fraud – Intentionally falsifying facts about your loss or otherwise deceiving you for their own gain.
If negotiations with your insurer fail to correct any of the above wrongdoings to your satisfaction, suing may be your only recourse. A lawsuit also paves the way for the court to award damages that compensate you for the insurer’s bad acts.
Consulting a Lawyer About Insurance Disputes
Fighting a coverage lawsuit filed against you by your insurer or deciding whether to take legal action against them yourself is daunting without experienced counsel. An attorney can evaluate your policy rights, claim merits, and options for resolving your insurance dispute through negotiation, litigation, or alternative means.
To find a qualified lawyer, seek referrals from trusted sources and read client reviews. Make sure they have specific expertise handling declaratory judgment cases and insurance bad faith suits. It’s wise to consult with multiple attorneys before selecting your counsel. Declaratory judgment cases often get resolved through summary judgment motions rather than full-blown trials. So pick a lawyer with a proven record of favorable summary judgment wins.
With the law on your side, you can defeat a wrongful declaratory action against you by your insurer or hold them accountable for improperly denying the coverage you paid for. Don’t let their aggressive legal tactics intimidate you. Fight back with a legal ace on your side.
What is a declaratory judgment?
A declaratory judgment is a court ruling that clarifies the rights, duties, or obligations of the parties involved in a civil legal dispute. These cases typically revolve around interpreting contracts.
How long does a declaratory judgment lawsuit take?
Many declaratory cases resolve through summary judgment motions, which can take 6-12 months. Cases going to a full trial can take over a year. Talk to your lawyer about the expected timeframe based on your specific situation.
What damages can I recover if I sue my insurance provider?
If you successfully prove your insurer acted in bad faith, the court may award you compensatory damages for financial losses caused by the denial or delay of your rightful coverage. You may also recover court costs, attorneys fees, and sometimes punitive damages.
Can I still make a claim if my insurance company is suing me?
Yes, you can still continue pursuing your insurance claim while also responding to their declaratory judgment lawsuit against you. The two processes can proceed in parallel.
Will my rates increase if I sue my insurance company?
There is a possibility your premiums increase in the future if you sue your insurer. But if the case proves their misconduct, it would be difficult for them to justify raising your rates. Consult your lawyer regarding the potential effects on your policy.
If you find yourself in a coverage dispute with your insurer, don’t go it alone against their legal army. Call an experienced insurance attorney right away for advice and representation fighting for your policy rights. With skilled counsel in your corner, you can defeat a declaratory judgment against you or hold your insurer accountable for denying the coverage you deserved. Don’t let them bully you – fight back with the law on your side!
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