What To Do When an Insurance Company Threatens to Sue You

Getting a letter from an insurance company threatening legal action can be scary and stressful. You may be unsure why you’re being threatened with a lawsuit or what steps to take next. This comprehensive guide covers what to do if an insurance company sends you a demand letter or indicates they may file suit against you.

Common Reasons for Threats of Legal Action

There are a few common scenarios where an insurance company may threaten legal action:

• Claim denial – Your claim was denied and you continue seeking payment.

• Settlement disagreement – They offered a settlement you disagree with.

• Dissatisfied with resolution – You settled but are still unsatisfied and threaten further action.

• Questionable claim – They suspect your claim contains fraud or misrepresentation.

• Contract dispute – There is a dispute over your policy terms, premiums or coverage.

• Subrogation – They paid another party for damages they allege you caused.

Threatening letters are usually a formality before filing an actual lawsuit. So don’t ignore the issue if you receive a letter demanding payment or threatening legal action.

What To Do if You Receive a Threatening Notice

If an insurance company sends a formal demand letter or indicates they plan to sue you, here are important steps to take:

1. Review the letter carefully – Make sure you understand what they are alleging or demanding. What specific dispute led to this threat?

2. Gather supporting documents – Collect any evidence you have to support your position such as claim paperwork, contracts, photos, communications, etc.

3. Consult your policy – Review your policy terms to see if they support the insurance company’s stance.

4. Call your state insurance department – If it’s questionable, contact your state insurance regulator to ask if the company is following proper protocols.

5. Send a response letter – Professionally respond in writing by the specified date why you dispute their allegations.

6. Hire legal counsel – If it’s a large issue, work with an attorney experienced with insurance litigation.

7. Negotiate a resolution – Try to negotiate a fair settlement before the insurance company proceeds with filing a lawsuit.

8. Consider mediation – If negotiations fail, mediate the dispute through an independent third party.

9. Prepare your defense – If it goes to court, work with your attorney to build your defense and gather supporting evidence.

The goal is to try to resolve the issue prior to a lawsuit if possible. But be prepared to defend yourself in court if needed.

Examples of Common Insurance Company Lawsuits

Some examples of common insurance company lawsuits include:

Denial of Claim Lawsuit

If your insurance claim gets denied but you think you’re entitled to payment, the insurance provider may sue you to reinforce their denial. For example, if you have multiple questionable claims for water damage in your home, they may believe you’re committing fraud and want to sue to void your policy and recover past payments. In this scenario, your defense would need to prove the validity of your claims and need for the denied coverage.

Settlement Disagreement Lawsuit

Insurance companies often try to settle claims for much less than victims believe they deserve. If you reject a settlement offer, they may threaten legal action to try to force you to accept it. In this situation, you would need to demonstrate why the settlement offer was inadequate and how the insurer is acting in bad faith by not fairly compensating your damages.

Contract Dispute Lawsuit

You may get sued by your insurance company if there’s a disagreement over your policy itself. For example, they could claim you failed to pay premiums when due or contention over what specific types of losses your policy covers. Here you would need to point to the policy language supporting your interpretation of the contract.

Subrogation Lawsuit

If another party sues your insurance provider for damages they claim you caused, your insurer may pay them a settlement then turn around and sue you to recover what they paid out. These “subrogation lawsuits” can occur if they don’t believe you were liable but settled to avoid further legal defense costs. Your defense here would need to include evidence you did not cause the alleged damages in the first place.

Key Steps to Take if You Are Sued by an Insurance Company

If you have done your best to resolve the dispute before getting sued, here are important steps to take once you’ve been served with a summons:

• Immediately provide your insurance agent and company copies of the lawsuit documents. They need to be aware of any litigation against their policyholders.

• Consult your own insurance policies to see if you have coverage to assist in your legal defense fees. Duty to defend provisions may apply.

• Hire an attorney experienced in insurance lawsuits to represent you. These cases can quickly get legally complex.

• Gather up evidence and witness statements to support your version of events in dispute with the insurer.

• Counter sue for damages the insurance company caused you by wrongly denying coverage if applicable.

• Explore the possibility of settlement before trial if it makes sense for your situation.

• Ask your attorney about laws that limit insurer bad faith conduct. This varies by state.

• Testify truthfully at depositions, hearings and trial. Jurors often sympathize with individuals over big insurance companies.

• Consider appealing the verdict if you lose at trial but have grounds to dispute the outcome.

Having a qualified legal advocate on your side can help even the playing field when being sued by a well-resourced insurance company.

Mistakes to Avoid if Threatened With Legal Action

Some common mistakes to avoid if you receive a demand letter or lawsuit threat from an insurance provider:

• Ignoring the notice – Hoping it will just go away. This allows them to win a default judgment.

• Accepting an unreasonable settlement – Don’t let threats push you into accepting less than you deserve.

• Getting emotional – As upsetting as it is, calmly communicate your position in writing.

• Failure to document evidence – Collect any documentation that supports your version of events.

• Lack of legal help – These disputes often require professional legal assistance.

• Not reviewing your policy – Understand exactly what coverage you have under your policy.

• Skipping settlement possibilities – Weigh all options for resolving the matter before trial.

• Not appealing – If the judgment seems unjust, explore your options to appeal.

Avoid rushed or emotional reactions when notified of potential legal action. Methodically build your strongest case possible.

Questions to Ask Your Attorney if Facing a Lawsuit

Key questions to ask your lawyer if an insurance company sues you:

• What are possible motivations for them suing me?

• What are my rights and protections under state laws?

• What claims and allegations can I counter sue for?

• What are possible settlement options we should explore?

• What claims and defenses can we assert under my policy?

• Can we recover damages for their wrongful conduct?

• What case law or precedents apply to this type of lawsuit?

• What is our strategy if this moves to trial?

• What are estimated legal costs I can expect?

• What are the pros and cons of settling versus going to trial?

Asking the right questions helps you understand your options and make informed decisions about responding to the lawsuit.

Final Thoughts

Getting threatening letters from insurance companies can be confusing and intimidating. But there are actions you can take to protect yourself. Seek to resolve the dispute through negotiation whenever possible. Consult qualified legal counsel for guidance in responding appropriately. And don’t ignore notices of possible legal action, which may only make the situation much worse. Handled systematically, many threats ultimately will not materialize into actual lawsuits, or will get resolved favorably prior to trial.