Can my car insurance company sue me?

Your car insurance company may sue you if they believe you are guilty of insurance fraud that costs them money. If the company acts in bad faith, you can complain to the state department.

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Zaneta Wood, Ed.S. has over 15 years of experience in research and technical writing bringing a keen understanding of data analysis and information synthesis to reach a wide variety of audiences. She studied adult education and instructional technology at Appalachian State University as well as technical and professional communication at East Carolina University. Zaneta has prepared technical p...

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Joel Ohman is the CEO of a private equity backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Jo...

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Reviewed by Joel Ohman
Founder & CFP®

UPDATED: Jan 29, 2021

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Here's what you need to know...

  • Ordinarily, car insurance companies do not sue their customers
  • If an insurance company can prove that you took part in insurance fraud, they can prosecute you
  • The easiest way to avoid insurance fraud is to be completely honest with any claim you report to your insurance company

If you are wondering how common it is for an insurance company to sue, be assured that car insurance companies ordinarily do not sue their customers for a number of reasons:

  • Suing an insured person is bad for business
  • Fraudulent claims are a crime processed under most states’ fraud laws — usually leading to criminal procedures, not lawsuits
  • Pursuing the legal process of suing an individual is both costly and time-consuming

Looking for car insurance? Enter your zip code in our free tool above to find quotes from multiple companies!

Disclosure Requirements under an Insurance Policy

Car insurance applications ask you a great deal of information about yourself.

Failure to disclose or falsifying the following information can invalidate your policy:

  • Drivers license numbers, names, and dates of birth for all drivers
  • Youthful or elderly drivers
  • The make, model, and VIN number for insured autos
  • All vehicles on the policy
  • Garaging location or place of residence

All these can affect the rating on your policy as well as your relationship with the insurance company.

Check the description of automobiles on your policy to be certain that they are accurate, down to the VIN number.

When purchasing insurance, recognize that there is an implied trust relationship between you and your insurance company.

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What is insurance fraud?

Insurance fraud is defined as an attempt to obtain a fraudulent outcome from an insurance process.

It may be when a claimant attempts to acquire a benefit or advantage to which he or she is otherwise not entitled.

An insurance company can commit fraud by knowingly denying a benefit due the insured.

Insurance fraud is fairly common in the United States. It is a problem because paying claims that are not valid can increase rates for all other policyholders.

Estimates suggest that an amount from $80 billion to $340 billion is paid out every year fraudulently, from not only automobile policies, but also health insurance, life insurance, worker’s compensation, and homeowners insurance.

Essentially, the monetary value of this fraud is siphoned from your budget by fraudulent claims.

If you become aware of insurance fraud, be sure to report it to your state’s insurance department. Original documentation will help them investigate.

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Helping Consumers and Insurance Agents Spot Fraudulent Claims

Recognize that one or two of these indicators will not necessarily prove insurance fraud — they just alert insurers to the possibility.

Typical instances of insurance fraud include:

  • An abnormal claims history
  • Incidents such as family fights before a car catches on fire or financial problems in the household
  • An increase of insurance coverage shortly before a loss
  • A peculiar attitude (such as appearing unemotional after a major loss) from the insured

Criminal Penalties for Insurance Fraud

Strangely, penalties for insurance fraud vary according to the stated type of fraud. Almost all states have criminal penalties varying from substantial fines to jail time.

These penalties are based on whether the fraud is deemed soft or hard:

  • Soft fraud – Usually consists of exaggerating an existing claim, such as over-estimating the damages caused by a car accident. This type of fraud is usually considered a misdemeanor, punished with fines, community service, and up to a year of jail time.
  • Hard fraud – Consists of a circumstance in which a person causes or lies about a loss in order to obtain insurance money. This type of fraud is a felony with strict penalties including incarceration for several years.

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What To Do If You Think the Insurance Company is Acting in Bad Faith

Insurance companies do make errors, although they are usually unintentional.

If you have difficulty with a claim, you may file a complaint with your state’s insurance department. Most states have complaint forms easily accessible on their website.

To find your state’s website, visit the NAIC. They have an easily accessed page to link to states’ websites.

Can my car insurance company sue me?

Ordinarily, your insurance provider will not sue you. Courts, attorneys, copying, filing fees, and the staff to sue are expensive.

However, if they can prove that you have been involved in insurance fraud that costs them money, they will feel free to prosecute you.

If you are looking for a policy, start comparing car insurance rates now by entering your zip code in our FREE tool below!

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