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What If My Auto Insurance Claim is Denied?

woman whose car insurance was denied weighs her options

Having your auto insurance claim denied is the last thing you want to have happen after being involved in an accident. Whether your incident was a fender bender or something more severe, finding out you're not covered can be devastating if you believe you deserve to be compensated. Make sure you get the benefits you pay for by understanding the common reasons insurance companies deny claims and what you can do if you think you've been treated unfairly.

Understanding the Claim Process: Traditional Liability vs. No-Fault

Your auto insurance claim starts with an accident or collision. The type of incident that occurred, the damage that resulted, who's involved, and who's at fault all determine the type of benefits you'll receive and who pays them.

Your compensation also depends on the state where you live. Auto insurance laws vary widely because state insurance commissioners regulate the industries in their individual states. Knowing whether you live in a state that has traditional liability versus no-fault insurance will help you understand who pays.

Traditional liability is much more common and easier to understand.

With this type of insurance, benefits are paid to the victim of an accident by the policy of the at-fault driver.

If you cause an accident, your policy will pay medical expenses and property damage costs to person or people you hit. If you're involved in an accident and the other driver is deemed to be at fault, their policy will pay benefits to you.

It's important to understand that the basic coverage levels of traditional liability are only designed to cover damage that a driver has caused to others. If you're the one at fault in an accident that results in injuries or damage to yourself, your own insurance will pay your benefit—but only if you have the proper policies in place.

No-fault insurance, on the other hand, is a little bit more complicated.

These types of plans attempt to limit lawsuits for minor injuries by settling claims through your own insurance, regardless of who caused the accident.

If you or your passengers get hurt, your own policy will cover your medical fees up to a certain point. However, if the other driver's at fault and your injuries are severe or your medical expenses are high, you might still be able to sue if your case meets certain requirements of your state.

Note that no-fault insurance doesn't apply to property damage. If you cause an accident, you could still be held accountable for claims to repair or replace someone else's car or other types of property. If you're at fault—or something else is at fault, such as weather or a natural disaster—your own insurance will cover your repairs if you have the right additional policies on your plan.

No-fault insurance only applies to you if you live in:

  • Florida
  • Hawaii
  • Kansas
  • Kentucky
  • Massachusetts
  • Michigan
  • New Jersey
  • New York
  • North Dakota
  • Pennsylvania
  • Puerto Rico
  • Utah

Common Reasons for Claim Denial

After you file an auto insurance claim, the company assigns an adjustor to oversee the claim. The adjuster then compiles the available facts and documentation to determine the level of damage, which driver was at fault, and the company's responsibility for the claim.

If you believe you have a right to compensation, you expect your claim to be approved and reimbursement to be timely and fair. Unfortunately, that's not always the case. You could receive a denial from your insurance company or the policy of the driver who caused the accident. If this happens, you'll receive a notice explaining the reason for your denial. There are many reasons your claim could be rejected, but certain ones are more common than others.

Insurance policies have limits on the amount of money they'll pay to you or others for expenses related to injuries or damage.

If the amount of a claim exceeds those coverage limits, you could be entitled to a portion of damages that falls within those limits or, in some cases, your entire claim can be denied.

If you're making a claim against your own policy and it exceeds your limits, you'll have to pay the rest of your damages out of pocket. Remember that you first need to meet your deductible before receiving any money from your insurance. If you're making a claim against another driver's insurance policy and it exceeds their limits, you can file a claim against your underinsured motorist policy if you have this optional coverage. You can also attempt to sue the driver for the amount of damages not covered by their policy, though regulations regarding this vary by the laws of your state.

It's important that your claim falls within the coverage included in your policy. Virtually all U.S. states require you to have some level of bodily injury and property damage liability, while other coverage is optional.

For instance, 2 of the most common additional coverage categories include collision and comprehensive insurance.

Collision covers damage to your car from an accident that you caused, while comprehensive insurance covers repairs and replacement due to non-collision events like extreme weather and theft.

Both of these policies are highly recommended but still not required. If you bust a headlight in a fender bender or a tree branch falls on your car, your insurance isn't responsible if you don't have this optional coverage.

Your insurance company can also deny your claim if you were breaking the law when the accident happened. Some typical violations that can jeopardize an auto insurance claim include:

  • Speeding over the posted limit
  • Texting while driving
  • Distracted driving
  • Passing improperly or illegally
  • Talking on a cellphone while driving
  • Driving without a valid license or permit
  • Failure to stop or yield

Insurance companies aren't obligated to provide coverage if you don't pay the cost of your premium. Most insurers allow a short grace period during which time you're covered after nonpayment, but you'll receive a notice of cancellation if that time passes without payment toward your plan.

You'll also be denied if you file a claim against another driver who allowed their insurance policy to lapse. If this occurs, you can file a claim against your uninsured motorist coverage if you have it.

Most insurance companies have requirements for the amount of time in which you're obligated to report an accident, contact the police, and submit a claim, so it's important to file as soon as possible to avoid being denied. In many states, a claim for property damage must be filed within 3 years and a claim for personal injuries must be filed within 2.

Insurance companies often have time limits for bodily injury claims to reduce the likelihood of paying for injuries that are either false or difficult to attribute to an accident after time has passed.

While these time limits vary by state and insurer, typical limits of 2 years allow for the development and diagnosis of most injuries.

Even if you don't have apparent injuries, getting a medical examination after any auto accident can help identify and document issues early and within the defined limits.

If you knowingly provide false information on your claim, you're committing insurance fraud. In addition to losing your coverage, you're risking fines, probation, and even jail time.

Claiming damages that didn't occur, padding the cost of damages, or claiming that a preexisting injury occurred in the accident all constitute providing false information.

You can also expect a denial if fraudulent information on your initial application is discovered during the claim process. For example, if your insurance finds out that you lied that your car being kept in a safer neighborhood to get a lower rate, your claim can be denied and your entire coverage canceled.

If you have an auto insurance policy, it's important to ensure that the policy includes every vehicle you drive. If you buy a new car, coverage doesn't automatically transfer to an existing policy. Unless the damaged car is listed on your policy, it won't be covered.

What to Do If Your Claim Is Denied

According to data analytics provider Verisk, U.S. auto insurance companies lose around $3.4 billion a year in fraud related to violations and accidents. For that reason, companies work hard to ensure they're not duped into paying for false claims. Sometimes, this vigilance results in a mistaken denial for legitimate claims. In other cases, the insurance company might be trying to save money with unethical practices.

If you believe your claim has been unfairly denied for any reason, you have several options to get the benefits you deserve.

If the reason for your denial doesn't match the facts of your claim, you can appeal the decision with the insurance company by doing the following:

  • Contact the insurer by certified mail and explain, in writing, where you believe a mistake exists
  • Provide detailed documentation (photos, eyewitness reports, medical test results, police reports, repair estimates, etc.) to support your side of the story
  • Specify a time limit for a response
  • Be willing to negotiate a fair settlement if the insurer doesn't completely change their position based on your argument

Insurance companies are regulated by state insurance commissioners. If you can't resolve a claim with an insurance company on your own, you can file a complaint with your commissioner. Find out where to start by using the National Association of Insurance Commissioners (NAIC) consumer tool. From here, you can connect you to your state's website for filing a complaint. 

An auto insurance company acts in "bad faith" when they fail to abide by a state's insurance laws. Some common bad faith practices include the following actions:

  • Refusal to pay a legitimate claim
  • Failure to pay a claim in a timely manner
  • Demanding unnecessary or unreasonable documentation for a legitimate claim
  • Failing to deny a claim in a timely manner
  • Failing to provide the reason for denial of a claim
  • Threatening a policyholder or claimant

If you believe your or another driver's insurance company is treating you with bad faith, you can bring a legal claim against the insurance company for its actions. A bad faith claim involves filing a lawsuit. For the best outcome, you'll likely require the assistance of an attorney who specializes in this area of law in your state.

If you're unable to negotiate a fair settlement from another driver's insurance company, you can file a personal lawsuit against the other driver if they're at fault. A lawsuit might even provide reimbursement for damages that exceed the limits of their policy. Since laws regarding liability and negligence in auto accidents vary by state, it's best to get expert legal before moving forward with this option.

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