Insurance Disputes Explained
Insurance disputes are issues that happen when a policyholder’s insurance company does not fulfill its obligations under the terms of the policy. This typically happens when a claim is filed and the insurer either denies the claim or does not pay the full amount owed under the terms of the contract. Disputes can also arise in the claims process due to delay by the carrier in reviewing and processing the claim.
Disputes can arise in any type of insurance:
These arguments are not always made overtly, but will be implicit in the insurance company’s adjuster’s interactions and/or its correspondence with the policyholder . It is very common for insurance companies to delay payment or deny a claim. Others time, it may be that they are disputing the amount of damages the insurer owes. This is a frequent argument in cases where an insured has suffered damage to its property and is claiming loss of profits because of the loss of use. In these cases, the insurer will try to argue that the loss of use, or lost profit, did not occur because of the damage and/or did not occur for the entire period of time asserted.
Is It Possible to Sue Your Own Insurer?
The legal basis for suing your own insurer can often times be found in the language of the contract itself. In addition to the contractual obligations owed, there are also various court opinions that provide guidance as to when a claim against one’s own insurance company may be appropriately brought. The North Carolina Court of Appeals has held that "[a]n insurance company may be liable to its insured for breach of contract when it fails to indemnify or defend an action against the insured." Miller v. Nationwide Mut. Ins. Co., 106 N.C. App. 660, 664, 418 S.E.2d 275, 278 (1992).
In another opinion, The North Carolina Supreme Court explained that "[i]t has long been the law that an insurance company has a duty to defend any action ‘when there is a possibility that the allegations of the complaint, if established, would require the insurer to pay damages.’" Ohio Cas. Ins. Co. v. Travelers Indem. Co., 301 N.C. 62, 67, 269 S.E.2d 400 (1980). While there is a heavy presumption in favor of an insurer’s duty to defend a lawsuit against the insured, under the terms of the insurance policy, the duty to defend is much broader and "exceeds the duty to indemnify." Id. at 67-68.
What To Do Before Filing a Lawsuit
There are some preliminary steps that should be considered before filing a lawsuit against your own insurance company. First and foremost, carefully review your policy. There are many different considerations the policy may contain such as cooperation clauses and whether or not the policy is a valuation policy or an "Actual Cash Value" policy. An Actual Cash Value policy can be much to the advantage of the insurance company and you may have punitive damages if your own insurance company has been unreasonable in its valuation of your property and has mislead you at the time of purchase.
Second step in this process is to begin to document what you feel is wrong with the claims process. This should be a simple one sentence description of the problem and a log of the dates of contact with the adjuster. It would include beginning communication date, response dates and follow up communication dates. Also, document the information provided to you as to how to make a complaint about the insurance company.
Third, engage in the claims process as much as possible and ask questions in each instance when there is a vague explanation about what is going to happen next. Also, document the manner in which each question is answered (if at all) and how long it takes for the company to get back to you.
The next step is to contact your insurance company and ask for a copy of the "policy." This is not the same as the "declarations page" that was mailed to you when you purchased the policy. Sometimes there are forms called "endorsements" that are added to the policy. The practice of not producing the actual policy is most disingenuous by some insurance companies. Allegations regarding the missing endorsement are sometimes raised by the insurance company in its defense to your suit. Therefore, it highly important to inquire with your insurance company if there are any endorsements at the time the suit is filed.
Finally, have a friend or trusted associate review exactly what you have documented. They may be able to find a potential problem before it becomes a disaster. Better to find it now than when it is too late.
Organizing the Lawsuit Against Your Insurer
The legal process of suing an insurer begins with the filing of a complaint. The complaint will lay out the facts of the case and allege the reasons why the insurer wrongfully denied the claim. It is then served upon the insurer and they have a certain period of time to answer the complaint and/or raise any affirmative defenses that they have, essentially informing the court why the insurance company believes that the claim was properly denied.
Once the case has been initiated, the next step is discovery. This process is designed to provide the parties with as much information as possible about each other. Both sides will attempt to obtain as many records as possible regarding all claims that the insurer has denied. Additionally, depositions may be taken so that both sides will have the opportunity to ask questions of each party under oath. Many times the witness in a deposition is not the same person who made the decisions which are later challenged in the lawsuit. For a well-worded complaint with sufficient factual allegation to state a claim, insurers usually do not file a motion to dismiss based upon a failure to state a claim upon which relief can be granted. Or, if they do, a competent attorney can argue against such a motion stating that the complaint does contain sufficient factual allegations to state a claim. Once the issue of the motion to dismiss is debated and decided, discovery begins.
Once discovery concludes and pre-trial motions have been filed, a trial will be scheduled in that particular court. Judicial economy as well as availability of the judicial resources will dictate when the trial actually takes place. Many times the parties will discuss the possibility of a settlement at various stages of the process, especially once the discovery period is ending and the parties have had the chance to see witnesses under oath and gather documents. It is not uncommon for parties to try to settle a lawsuit early in the process, after all of the facts have been revealed to the opposing side but before the expense of expert witness reports and perhaps even expert depositions is undertaken. Many cases that are properly filed often resolve shortly after all of the facts have been exchanged through the discovery process.
Possible Results From a Lawsuit
Just as in other legal disputes, if you sue your own insurer, there are three possible outcomes: You win, you lose, or you settle. These possibilities apply whether you sue for a coverage decision or for an injury or damage claim against the insurance policy that the insurance company has refused to pay.
If you win, there are generally two possible outcomes. If there is a coverage dispute, you have the right to recover both the expected benefits under the contract and your reasonable legal fees. Those amounts are added together but may not exceed three times your damages. If you sue for an injury or damage claim and win, you can be assured that the insurance company will pay for the judgment. The problem is they can do so on their own timeline. In most states, they have 30 days to act after judgment and they rarely obey a set timeline. They need not act before, but you can require them to do so if it delays the appeals process due to stay of execution filing.
If you lose , the insurance company is entitled to their costs right away. In some states, you can be liable for their attorneys’ fees. Naturally, they will point out these rights in their pleadings or Sanction motions and request that the court grant them. Be mindful that you may have to wait depending on how long their lawyer drags things out.
If you settle, you gain some certainty about the outcome, but the company is not required to offer you everything. Sometimes policy release clauses and further expert review of the dispute can be negotiated by your lawyer. You will get to confirm that all future contract duties will be honored.
In the end, these negotiations can be fruitful, but it is usually only if multiple attorneys from the company’s legal department feel strongly enough that the main lawyers will concede to the settlement that you seek.
The best possible scenario is that they will issue a check now and you will leave happy.
Time and Money Considerations
If you decide that suing your own insurance company is the best option for you, it’s helpful to know what type of investment you’re in for. As a general rule of thumb, almost all lawsuits are expensive. The average cost to get through the first step of any lawsuit (the Summary Judgment phase) is between $15,000 and $25,000 in legal fees. That is a lot of money for a small claim.
Cases involving personal auto insurance claims tend to be the least expensive, with legal fees averaging a little under $10,000 to get to the Summary Judgment phase.
Residential homeowner insurance cases are right in the middle at about $18,000. And liability insurance cases are the most expensive, averaging $27,000 to get through the Summary Judgment phase.
Then there is the factor of time. You have to be willing to wait for 3-5 years before getting a trial date. Some insurance companies–like Farmers Insurance Company–will settle within the first 3 years, after which they wait until just before the trial date before paying out their damages. Other insurance companies, like State Farm Insurance Company, will fight you tooth and nail, up to and including appeals to the Washington Supreme Court.
Alternate Legal Remedies
When faced with a breach of contract claim against your own insurance company, you have many options besides litigation. While we are trial attorneys, our experience tells us that cases are resolved prior to trial in nearly all cases. You have a right to sue your insurance company if they refuse to pay your claim but consider other means of resolution such as arbitration and mediation. Depending on the facts, the law, and most likely the theme of your insurance claim, an arbitration may be your best option for resolution while a mediation may be another solution. You can go to court against your insurance company, however, the process can be lengthy, stressful and many times expensive.
Many insurance issues are resolved out of court. If the dispute does get to the court system, the first step is filing a motion to refer the matter to arbitration or mediation. A motion to refer is essentially a request directly into the court asking the judge to refer the parties to arbitration or mediation. The judge will then review the underlying contract, the laws, and the potential outcomes of the case. Most likely the judges will refer the case out to the amiable solution that mediation and arbitration provide.
Mediation is a process by which the parties sit down with a neutral third party who is considered to be an expert in the field. This person acts as a guide to a fruitful solution between the parties. The mediator is not the decision maker. The goal here is to work together to reach a compromise that benefits both parties. Many issues can be resolved through mediation and the process is less than a day of court. The parties will bring forth evidence and discuss the anticipatory motions that create the core of the lawsuit. The mediator is a guide to the proper outcome based on the facts and the law. While the process is much shorter than a court hearing, it takes time to prepare for mediation.
The Department of Insurance and Financial Services holds mediations for parties that can be delegated to them upon motion of one of the parties. More often than not an insurance issue can be resolved through a mediation. Our attorneys recently had an insurance company offer a settlement of $100,000.00 at a mediation on a $17,000.00 claim. The claim at issue was repayment of home health care.
Arbitration is an alternate dispute resolution. An arbitration is similar to a mediation, but generally the parties agree to allow the arbitrator to make a decision on the case, as opposed to a mediation where the parties are guided to a solution by the mediator. This is or can be a more adversarial process without the judge and jury. However, many times the parties agree to binding arbitration which can mean the decision by the arbitrator is permanent and appeals are rare.
Many times there are clauses in contracts that speak to arbitration. Again, once you file a complaint with the court, a motion to refer is filed asking for the parties to be refer to the Department of Financial Services and Insurance arbitrators. An arbitrator will be chosen and the process begins.
No matter the stage of your lawsuit, there is value in considering settlement at every juncture. From the date you file a lawsuit to the date you appear in front of the judge and jury, there is value to compromise. At each stage the costs rise and the stakes rise. Every step has a value and there is no reason to believe that your case is the exception to the general rule of law. The more realistic you are about a fair settlement the more likely you will resolve your case early on. Attorneys can provide a lower fee schedule for mediation and settlement discussions.
Selecting Legal Representation
Now that you have made the important decision to sue your own insurance company, how do you find the right lawyer for this task? The first step is to look for an attorney with specific experience in this area. Do not choose the first lawyer you can locate mostly because he or she is conveniently located within a few blocks of your home or office. Take the time to ask friends, loved ones and co-workers who have dealt with insurance companies in the past for recommendations. Check out their credentials and most importantly, ask them if they have ever sued an insurance company for insurance bad faith. If you receive a positive response, make an appointment for a consultation with the lawyer or law firm. In all probability the consultation will not be free, but it can be a very sound investment when it’s time to hire a lawyer.
The first step in a necessary vetting process is to determine if a lawyer truly specializes in insurance bad faith litigation. Ask him for specific examples of cases that resulted in settlements or verdicts equal to or exceeding insurance policy limits. While no lawyer will risk throwing his current or future business with his clients under the bus, he or she should at least be able to give you a general idea of the number of cases he has litigated or settled on behalf of insurance bad faith clients and the insurance companies involved, as well as any experience he or she has litigating against your own insurance company. A lawyer who has litigated or settled many cases against the same insurance company it now represents as your potential representative has a potential advantage you should consider. If the lawyer represents your insurance company, he or she may be more sympathetic to your plight than an attorney who has had no dealings with it in the past.
The next vetting step is to ask the lawyer how long he or she has been practicing insurance litigation. A lawyer who has just hung up a shingle and has little or no experience with insurance lawsuits is not likely to win a significant award or settlement amount in your case. You want a lawyer who has been practicing insurance litigation for a number of years. Although there are exceptions to every rule, those exceptions should never involve the need for a lawyer to learn on the job while your future depends on the outcome of your lawsuit.
For most people, the cost of legal representation is one of the most important factors in hiring a lawyer. This factor should weigh heavily in your hiring decision, but bear in mind that representation from an inexperienced or overworked young associate from a big law firm and between 2008 through 2013, resulting in weak insurance bad faith lawsuit that ends up costing you years of litigation, perhaps a loss on appeal and the loss in the value of your case, all significant costs that take their toll in terms of attorney’s fees, stress and time.
So , how much does a lawyer charge to represent clients suing their own insurance companies? There are two choices for these types of insurance lawsuits: contingency fee agreements and hourly charges. A contingency fee agreement charges you no fee unless the lawyer recovers money for you. Instead, he or she will take a percentage of the recovery (usually 25 to 35 percent) as a fee. Make sure you understand what costs will be deducted from your recovery before you sign any agreement. Some lawyers attempt to wiggle past the usual deduction expenses by absorbing these in their fees.
You also should understand that contingency fee lawyers often set their fees by the difficulty of the potential case. For example, a large insurance company that caused you to suffer a severe injury ends your claim investigation process then offers to settle your claim at an amount far below the value of your case. This means your case is a good candidate for a lawsuit and in most states, the insurance bad faith law requires that the insurance company be presented with a "policy limits demand." If the insurance company does not pay the demanded policy limits, submits a low counter-offer and forces you to litigate your case in order to collect on it, there is substantial upside for you, your attorney and your doctor(s). This scenario, which is a lifestyle for insurance companies, is frustrating to insurance consumers who have suffered injury because they have already been forced to pay for their medical treatment out of their own pocket and out of fear of a recovery reduction in the future, and are now being forced to litigate their insurance claims in order to achieve what they should have been paid in the first place.
Your attorney should charge a contingency fee contingent upon you recovering the policy limits of your insurance coverage. No matter how hard the case would be to litigate, he or she has already secured the cost of a future personal injury recovery should he or she need to present the case to a jury at trial. Hourly fees are usually charged at about $200 per hour or more. The lawyer and any other attorneys working on the case should log all time spent on your lawsuit, down to the minute. This method allows the lawyer to charge you only a small fee for writing letters, making telephone calls or preparing documents. Remember that if a lawyer charges you for work he or she passed on to paralegals or clerks, you will feel quite foolish paying $40 for a letter that was dictated to a secretary or clerk who typed it up and sent it to the post office. Lawyers must have associates and support staff and you must pay for their services, but only at reasonable rates for the services rendered. Avoid any attorney who won’t write all the letters in a case that only he or she could write, or who asks you to send and sometimes even deliver, them.
Even though hourly charges may seem like a better idea than contingency fees, most property and casualty insurance companies charge you hourly and assure you that they will only charge you the same sort of fee structure. They don’t. They charge you much more and do far less work.