Why Your Auto Insurance Claim May Be Denied, And What To Do If It Is

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When you buy auto insurance, you probably hope you’ll never get into an accident and need to file a claim.

But if you ever have to file one, you expect your policy to pay off.

Unfortunately, insurance companies can—and do—deny policyholders’ claims on occasion, often for legitimate reasons but sometimes not. Here are the major reasons your claim might be denied and what you can do if that happens.

Why Claims Are Denied

Claims adjusters, the people who investigate insurance claims for a living, say these are the most common justifications insurers use to deny a claim or pay less than the full amount.

Policy limits. Every policy has limits on how much it will pay in the event of an accident, and if your claim is greater than your coverage limits, you could be stuck for the excess. For example, the limit on your property damage liability coverage (the kind that pays if you damage someone else’s car or other property) might be $10,000. That could be adequate in some instances but a problem if you rear-end, let’s say, a $400,000 Lamborghini. States set minimums, such as $10,000 or $25,000, for liability coverage, but you can choose a higher limit by paying extra.

How much money you are likely to recoup will also be affected by your deductible—the amount you must pay out of pocket toward a claim before your insurance kicks in. For example, if your deductible is $500, the first $500 is your responsibility, not the insurer’s. The higher your deductible, the less you’ll pay for insurance each year, but the more you’ll be on the hook for if you have an accident.

Policy coverage. An auto policy consists of several different kinds of coverage. Among them are property damage liability (described above), collision coverage (which pays for damage resulting from a collision with another car or if you hit, say, a light pole), and comprehensive coverage (which covers damage from other causes, such as fire or vandalism). Some coverage may be mandated by your state, but other types could be optional.

For example, people sometimes cancel their comprehensive coverage if their car is old and worth less than it would cost to insure for several years. But if you drop comprehensive coverage and a tree falls on your parked car and squashes it, your insurer will deny that claim.

Breaking the law. Even if you have the right kinds of coverage and adequate amounts of them, your insurer can deny your claim if you were in violation of state law when the accident happened. One example of that would be driving without a valid license. Another is if you were driving while intoxicated.

Additional reasons. An insurer can also deny a claim on the grounds that the accident was avoidable on your part or if it believes your claim to be fraudulent. Among the red flags that insurers routinely watch for:

  • Not reporting an accident immediately to the police or your insurer.
  • Not seeking medical attention, if any is needed, immediately after the accident. That can lead to suspicions that you are filing a claim for injuries that weren’t the result of the accident.
  • Providing false information back when you purchased the insurance—which the insurer might uncover in the course of investigating your claim.

Resolving a Claims Dispute

If you feel that your claim was wrongly denied or that you were inadequately compensated, contact your state’s insurance department. Ask how to submit a complaint and what to do next.

Auto insurance is regulated on the state level, and many states have a special units set up to deal with these kinds of policyholder issues. For example, in California the Department of Insurance’s Claims Mediation Program will help consumers negotiate a disputed claim with their auto insurance company under many circumstances.

If all else fails, and a large enough amount of money is at stake, consider hiring an attorney to represent you.

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