Can I sue my own car insurance company?

The purpose of insurance is to cover you for damages and losses suffered in an accident, so it can come as a shock if your claim is rejected or ignored. If you believe your adjuster has failed or refused to pay a valid claim, or has neglected your case altogether, you may be able to sue your insurance company for breaching the terms of your insurance contract or acting in bad faith.

You might be surprised to learn that you can sue your own car insurance company.  The catch is that only a limited number of legal claims exist for suing an insurance company. This article discusses the legal claims you may be able to make against your provider, as well as the types of damages you may be awarded if you win.

What are the reasons I can sue my own car insurance company?

There are three possible legal claims that can be made against an insurance carrier. The two most common claims are breach of contract and acting in bad faith. There may also be statutory claims available depending on the laws of the state you live in. 

Suing Your Insurer for Breach of Contract 

Your insurance policy is actually a contract between you and the insurance company. In that contract, you agree to pay monthly premiums in exchange for the insurer’s promise to compensate you and others for covered accidents. 

Your insurance contract also includes a number of duties that the insurance company is obligated to perform, including the following:

• to pay valid claims in a timely manner
• to promptly and thoroughly investigate claims
• to defend the policyholder in any lawsuits relating to the accident 

That means you may have a claim for breach of contract if your insurance company:

• fails or refuses to pay a claim where coverage is clear or isn’t disputed
• unreasonably delays or mishandles the investigation of a claim
• fails or refuses to approve or deny a claim within a reasonable or specified time frame
• denies a claim without giving a basis or reason
• fails or refuses to defend you in a liability lawsuit relating to a covered claim

So, does that mean you can sue your car insurance company for taking too long to pay out on a claim? Technically, yes, but you have to review your policy to make sure you have exhausted all other remedies first, such as the provider’s internal appeals process.

Although people don’t normally think about suing their insurance company when they get coverage, it’s always important to carefully review the policy and any endorsements to ensure you are aware of your obligations and understand your rights and the insurance provider’s contractual responsibilities.

Suing Your Insurer for Bad Faith

Bad faith claims may seem similar to breach of contract claims, but they’re different. A bad faith claim is a tort with different legal elements. Most notably, bad faith claims look at whether the insurance company acted negligently or intentionally, whereas contract claims do not.

Read more: Compare Full Tort Car Insurance: Rates, Discounts, & Requirements

That said, the underlying facts for a bad faith claim can be the same as for a breach of contract claim. As a result, an insurer’s refusal or failure to process, investigate, or pay on a valid claim within a reasonable period can constitute bad faith in addition to breach of contract if the insurance company’s failures were intentional or a result of negligence.

Here are some examples of how insurers act in bad faith:

• misrepresenting or misinterpreting policy language to avoid paying a claim
• failing to disclose coverage limitations or exclusions when selling a policy
• making unreasonable demands on the policyholder to prove a claim
• making an unfair settlement offer

Keep in mind that bad faith claims may be more difficult to prove than breach of contract claims. That’s because most bad faith claims require the policyholder to prove the insurance company didn’t just act or fail to act but was intentional or negligent in the action.

Are there reasons I cannot sue my insurance company?

There are limits to what you can sue your insurance company for. Some limitations have to do with the carrier’s reasons. Others have to do with the policyholder seeking the wrong kind of damages.

There’s a Legitimate Reason for the Carrier’s Actions

Just because your insurance company denies coverage doesn’t mean you will be able to sue. Often, the insurer has legitimate reasons for denying a claim or for a delay in processing the claim.

Examples of good faith reasons an insurer may have to deny a claim include the following:

• The accident is a type covered by your particular policy.
• The policy lapsed, or the accident occurred outside of the policy term.
• The damages exceed the claim limits.
• The policyholder makes an error in applying for insurance coverage.
• The policyholder makes an error in making a claim, including untimely claims.
• The claim is false or exaggerated.

Also, you shouldn’t rush to the courthouse just because your adjuster takes longer than you want to investigate and reach a decision on your claim. There is no one answer to the question of how long a car insurance claim takes. Policies generally don’t set a specific time for when a claim has to be resolved because some claims require longer to investigate, especially if they involve multiple claims, parties, and insurance companies.

Also, the reality is that some adjusters just have heavy caseloads, which can delay the claims process — it doesn’t necessarily mean they acted improperly. In order for a delay to be actionable, it has to be unreasonable or intentional. For example, the adjuster is non-responsive despite repeated requests from the policyholder to take action.

But what about receiving a settlement offer that is less than what you expected? Not getting the settlement you want, by itself, is not a basis to sue your insurance provider. You’d have to prove two things: that the settlement offer is unfair, and that the adjuster offered the unfair settlement in bad faith.

A fair settlement depends on your specific damages. It’s easier to show that a settlement offer is unfair if you only seek repair damages and the adjuster refuses to pay amounts that receipts or estimates have substantiated.

On the other hand, if you’re seeking damages for things like pain and suffering or loss of future income, proving that your settlement offer is unfair can be tricky because there is no set formula for calculating those kinds of damages. However, some say the rule of thumb to compensate for pain and suffering and other non-economic damages is 1.5 to 5 times the total damages.

Again, make sure you review your policy terms before suing your provider for making an unfair offer. You may be required to follow the insurance company’s internal process on how to dispute an insurance claim before you can sue them in court.

You’re Seeking the Wrong Type of Damages

If you’re going to sue your car insurance company, make sure you’re seeking the right damages.

These are the types of damages you can ask for in a lawsuit against your provider:

• economic damages
• non-economic damages
• punitive damages

Economic damages are defined as the amount necessary to compensate for all monetary loss resulting from the accident. Economic damages aren’t just limited to out-of-pocket expenses for property loss, medical expenses, and present loss of income. They can also include compensation for future medical care and loss of future income. Typically, economic damages can be objectively measured or established with receipts, bills, and expert testimony.

Non-economic damages, on the other hand, are less certain than economic damages because they relate to pain and suffering, emotional distress, loss of enjoyment of activities, or aggravating prior injuries. Many states also allow a spouse of an accident victim to seek a unique category of non-economic damage called loss of consortium to compensate the spouse for the loss of the injured spouse’s help, comfort, and companionship.

In certain bad faith or statutory claims, the policyholder may be able to ask for punitive damages. Punitive damages are meant to punish a carrier that engaged in severe and intentional misconduct. They are not imposed often and are typically reserved for the most egregious cases of bad faith.

What kind of damages are not allowed against an insurance company?

Many people are curious about whether they can sue their carrier for diminished value. Diminished value refers to the decrease in a vehicle’s value because it has been in an accident. So even if the car is repaired, it won’t have the same market value as similar cars that don’t have any history of accidents or damage. 

Courts have consistently rejected diminished value lawsuits against insurers. The reasoning behind these decisions is that it would be an undue financial burden on carriers to cover diminished value losses, which would increase insurance premiums and make them unaffordable for policyholders.

Case Studies: Suing Your Own Car Insurance Company

Case Study 1: Breach of Contract Claim

Mike filed a claim with his car insurance company after his vehicle was damaged in an accident. However, the insurance company denied his claim, stating that the damage was not covered under his policy. Believing that his claim was wrongfully denied, Mike decides to sue his own car insurance company for breach of contract. 

Case Study 2: Bad Faith Claim

Lisa was involved in a car accident and suffered significant injuries. She submitted a claim to her car insurance company for compensation for medical expenses and lost wages. However, the insurance company unreasonably delayed processing her claim and failed to provide a proper justification for the delay.

Frustrated with the insurance company’s handling of her claim, Lisa decides to sue her own car insurance company for acting in bad faith. She believes that the insurance company intentionally or negligently mishandled her claim, causing her further distress and financial hardship.

Case Study 3: Statutory Claim

David’s car insurance company denied his claim for property damage resulting from a collision. After researching his state’s insurance laws, David discovers that there is a specific statute that requires insurance companies to promptly and fairly process valid claims.

Realizing that his insurance company violated this statutory requirement, David decides to sue his own car insurance company for a statutory claim. He believes that the insurance company’s actions were in direct violation of the state law.

The Bottom Line: Breach of Contract and Bad Faith are Viable Claims Against an Insurance Company

Policyholders can bring lawsuits for breach of contract and bad faith against car insurance companies. Statutory claims may also be available depending on the state you live in. You may be awarded economic damages to compensate you for monetary losses, non-economic damages for pain and suffering, and possibly punitive damages in bad faith claims. Still, courts won’t let you sue your car insurance company for the diminished value of your car resulting from the accident.