Insurance Coverage Disputes
Before an insurance company pays any benefits on a claim submitted by one of its insured policyholders, it may make an initial determination of whether the claim is covered under the terms of the policy. This process usually involves an investigation of the accident, as well as a thorough review of the terms of the policy itself to determine whether the policy applies to the claim at hand. The insurer may even seek an opinion letter from its lawyers before it decides whether to pay or deny the claim. When these actions are unreasonable or taken solely for the purpose of avoiding paying a valid claim, the insurer can be sued for insurance bad faith and held liable for damages.
The insurer may also review the policyholder’s history to make sure you are current on premium payments. They may even pore over the original application to determine whether it was filled out completely and accurately. When carriers find missing or inaccurate information on the application, they may attempt to rescind the policy on those grounds. This type of action may well be an example of bad faith. Insurers should review the application at the time they decide to issue the policy, and not months or years after taking your money every month.
Third Party Claims and Coverage Disputes
Coverage disputes may also arise when you are being sued by a third party and asking your insurance company to indemnify you. For instance, if you are involved in an automobile accident and the other driver claims the accident was your fault, your liability insurance should kick in, and the carrier should either settle with the other driver or defend you in court. The decision whether to settle or litigate may be a strategic, “risk management” assessment, but the determination of whether coverage exists must initially be made in good faith.
When a dispute as to coverage exists, either party may go to court seeking a declaratory judgment. In a declaratory judgment, the court will render an opinion on the rights of the parties under the contract. The good news for the policyholder is that most often you will only need to prove that a potential for coverage exists in order for the court to rule in your favor and require the insurance company to defend you. Even in this case, however, the insurer may choose to defend under a reservation of rights, and if a judgment is entered against you, you may still have to litigate the dispute further to force the insurer to pay the judgment on your behalf.
If you are involved in a coverage dispute with your insurance company, it would be wise to seek professional legal representation. The insurance company will be using its in-house legal department or an outside insurance defense firm to represent it; you should have a skilled and knowledgeable attorney on your side as well. In New York City, contact Leandros A. Vrionedes, P.C.