Can I sue my own car insurance company?

You may consider suing your car insurance company if there is a breach of contract or denied claim. If you try suing your car insurance company for diminished value, your claim won't be honored.

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A former insurance producer, Laura understands that education is key when it comes to buying insurance. She has happily dedicated many hours to helping her clients understand how the insurance marketplace works so they can find the best car, home, and life insurance products for their needs.

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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: Sep 14, 2021

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Here's what you need to know...

  • You cannot sue for diminished value
  • If your insurance doesn’t fulfill its contract, you can file a bad faith claim
  • It may be possible to have a lawyer take the case on a contingency basis

You can sue your car insurance company if you believe that they’re not honoring the contract with you, but it’s important to know what to expect from the process.

For example, there are some things that you simply cannot sue for, including diminished value after an accident.

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Are diminished value claims allowed?

The interesting thing about diminished value claims is that insurance carriers agree that the contracts are worded in such a way that they should compensate for diminished values, yet state supreme courts across the nation have agreed with their decision not to.

After a car is in an accident and it repaired by the company, it typically has a diminished value. Since the insurance company paid for the repairs, the initial damages and corrective work will be reflected on CarFax reports that look deeper into the car’s history.

Cars that have been wrecked are never quite the same, so potential buyers will not be willing to pay full market value for the vehicle.

In theory, you can sue the company to have them pay for the damages and the diminished value so that you won’t experience any financial loss after the accident.

However, insurance companies refuse to pay for diminished value.

They claim that if they had to cover these losses on every vehicle, insurance premiums would skyrocket and become unaffordable for everyone.

Many states have fully decided that first-party diminished value claims will not be honored.

However, you may still be able to sue the responsible party if your accident was caused by another person. In this case, you may have a decent chance of getting the other insurance company to cover your diminished value.

There are also a handful of states, like Georgia, where first-party diminished value claims have been allowed, and you may have a chance of moving forward with such a claim in these states.

While most companies have the same policy regarding diminished value, you can look for a provider that will handle payouts promptly and treat you fairly when claims are filed.

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Are lawsuits allowed for denied claims?

If your insurance company completely denied your claim, then a lawsuit can be a viable option.

You can sue your insurance company if they violate the terms of your auto insurance policy. Such violations include: not paying claims on time, not paying properly filed claims, or making bad faith claims.

This type of lawsuit is called a “bad faith” claim because you’re asserting that the company failed to fulfill its obligation to you in violation of your contract.

An auto insurance company may provide various reasons for denying your claim, including:

  • Lack of coverage-They may say that your claim isn’t covered by your insurance policy.
  • Application errors-They may claim that you made certain misrepresentations on your original application that invalidate the coverage.
  • Claim errors-You should check the requirements for notifying the insurance company of any claims.
  • Insurance fraud-Providing false or exaggerated claims can result in insurance fraud, which in turn carries civil and criminal consequences.
  • Bad faith denial-Insurance providers may offer many justifications to cover the fact that they just don’t want to pay for the claim.

As a consumer bringing a lawsuit, you may have to prove certain actions or inactions on the part of your insurance company.

Depending on the state in which you bring the suit, it may be necessary to prove that:

  • The company failed to make a reasonable investigation into the claim
  • Obvious information was ignored by the company or insurance adjuster
  • An agent of the company engaged in willful ignorance or intentional misconduct

When it comes to disagreements over a claim, you may be better off going through the company’s internal system for disputes. Sometimes, just talking to a manager and asking to have the information reviewed and reassessed.

Dealing with Unfair Offers

In other cases, the claim offer that comes in simply seems unfair. State laws typically require insurance carriers to deal with their consumers fairly and to be forthright in their settlements.

States across the nation do have some type of Consumer Protection Act that provides you with important protections.

However, before you can decide whether to file a suit, you should understand what is considered unfair conduct on the part of your insurance company.

You may have a suit if your company has:

  • Misrepresented or refused to disclose the insurance coverages
  • Failed to act in a timely manner regarding verification of insurance coverage
  • Ignored claims and communications or taken excessive time to respond
  • Neglected to investigate the claim
  • Delayed any fair and reasonable settlements for claims that have been substantiated

If you believe that you’ve been treated unfairly, then you’ll have to take certain steps under your state’s Consumer Protection or Unfair Settlement Practices Act.

Typically, your lawyer will have to send a letter to the insurance company outlining the illegal or unfair conduct. Additionally, this letter will also have to identify the exact statute being violated and deliver a settlement demand.

If the company does not respond, then you’ll be free to move forward with a lawsuit so that you can get the compensation you deserve. You can seek a settlement award that is double or even triple your initial damages plus the insurance attorney’s fees.

Should you file for breach of contract?

If you decide to take your insurance company to court, you’ll basically be filing for breach of contract. This seems like a straightforward concept as you strive to establish that the company has not followed the terms of your policy.

Some insurance companies may use ambiguous language to protect themselves, but states typically rule in favor of the policyholder when this is the case. If your company has clear terms, then it may be easier to show that they’ve breached the contract with you.

However, you should keep in mind that the amount of damages you can sue for is limited to the out of pocket expenses you incurred as a result of the insurance company failing to cover your claim.

You may be able to seek more in the way of damages by going with a bad faith lawsuit.

Under this type of claim, you can seek consequential, emotional, and mental stress damages. In the case of egregious conduct on the company’s part, you can also seek punitive damages.

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Moving Forward with a Lawsuit

Filing a lawsuit is not a simple matter. You should be prepared for what to expect so that you can make an informed decision. An insurance attorney can explain all kinds of damages since each state has different rules about the types of damages you can pursue in a claims lawsuit. Claims hearing will usually be scheduled 30-70 days after you file the lawsuit.

Preparing for Discovery

The first step you’ll go through in a lawsuit is the discovery process. Your insurance attorney and the insurance company’s legal counsel will exchange documents and proceed with depositions. This formal process is focused on uncovering the facts in the case.

Expenses and Settlements

You’ll incur expenses along the way, including legal fees, court costs, and travel. Likewise, the insurance company will also have expenses to contend with along the way.

This expense is why many cases are settled out of court. By settling, both sides can save time and money. If you decide to move forward with a suit, then you’ll have to prepare for the next step.

Depositions and Court Dates

If the case goes to trial, then you’ll have to be prepared for facing the opposing counsel and answering questions. Your lawyer will work to protect you during this process, but you’ll be expected to answer fair questions honestly.

It can take years to fully resolve a case, and there’s always the chance that you’ll lose or that the insurance will appeal the claim if you do win.

Filing a Case on a Contingency

Under the contingent fee system, a lawyer will take your case without charging you any initial fees. If you win, then he or she will receive a portion of the proceeds. If you don’t win, then the lawyer writes off the expenses and you’ll pay nothing.

Whether an insurance attorney would be interested in taking your case under this plan simply depends on the facts.

If you feel that your insurance company has not treated you fairly, then it’s time to shop around for a different company. It’s possible to save on your premiums by looking at the competitors.

Be sure to read potential contracts carefully and review a company’s customer service ratings before making any final decisions on providers.

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