Can Your Insurer Sue You? 4 Situations Where an Insurer Could Sue a Policyholder

Yes, insurers can and will sue policyholders regularly. In an insurance claim dispute, insurers could sue a policyholder if they believe they have a valid legal reason to do so.

Today, we’re highlighting some of the situations where an insurer could sue you – and common methods for handling an insurance lawsuit.

Be Advised: Each insurance claim is unique and there is no one-size-fits-all solution, especially with claim disputes and denials. Our tips are meant to serve as general information, should not be taken as personal recommendations, and are in no way legal advice.

Yes, Your Insurer Can Sue You at Any Time

Generally, someone in the United States can sue another person any time they like.

Your insurer could choose to sue you for various reasons. If your insurer believes it has a valid legal reason to seek damages from you, for example, then your insurer could file a lawsuit against you.

Reasons an Insurer Could Sue You

If an insurer sues you, the insurer likely has a valid reason to do so—or at least think they do.

Some of the most common situations where insurers sue policyholders include:

1. Insurance fraud
2. Breach of contract
3. Obstructing the claim or interfering with claims or compensation
4. General reimbursement of damages

We’ll explore these situations in further detail below.

1. Insurance Fraud

Insurance fraud is the most common reason an insurer sues a policyholder.

If you intentionally deceive your insurance company, then you could be sued for fraud.

Some of the reasons an insurer could sue for insurance fraud include:

• Providing fake documents
• Exaggerating damages
• Misrepresenting a claim
• Intentionally damaging your property
• Failure to reveal pre-existing damage

Insurance companies lose hundreds of billions of dollars to fraud each year.

Some policyholders knowingly commit fraud against their insurance company – say, by paying someone to set their home on fire. Others unknowingly commit fraud – say, by including pre-existing property damage in a new insurance claim. Fraud is fraud, however, and insurance companies may take legal action.

2. Breach of Contract

An insurance policy is a contract. Both you and your insurer sign a legally binding agreement.

If you or your insurer fail to abide by the terms of your insurance contract, then there could be a breach of contract lawsuit.

An insurance contract stipulates your annual premiums, for example, which is the amount of money you need to pay to receive coverage. It also stipulates when you need to pay your premiums.

If you fail to pay your premiums on time or in the required amount, then you could be breaching your insurance contract.

Some of the most common reasons an insurer could sue for breach of contract include:

• Non-payment of premiums
• Late payments
• Misrepresentation of information
• Failure to cooperate with a claim
• Fraud
• Other violations of contract or policy terms

3. Interfering with Claims or Compensation

As a policyholder, you must abide by the terms of your insurance contract. Your insurance contract has specific rules about filing a claim – like the information you need to provide and how soon after a loss you need to file a claim.

If you interfere with the claims process or hinder the insurer’s investigation, then you could face a lawsuit.

Some of the situations where an insurer could sue you for interfering with a claim include:

• Refusing access
• Withholding information
• Failing to file the claim in a timely manner
• Engaging in other actions that interfere with the insurer’s ability to manage the claim

You could also face a lawsuit for interfering or obstructing the compensation process. If you received a payout from a settlement, for example, and are refusing to give a previously agreed portion of that settlement to the insurer, then you could face a lawsuit.

4. Reimbursement of Damages

Your insurer could sue you for reimbursement of damages.

There are two main situations where an insurer could sue for reimbursement:

• Settlements: Did you receive a settlement from a related 3rd party insurance claim? Some insurance policies require you to reimburse your insurer after a settlement. If you fail to pay your insurer after a settlement, you could face a lawsuit.
• Subrogation: In subrogation, one insurance company seeks compensation from the other insurance company. If you’re the at-fault driver in a car accident, for example, then the other driver’s insurer could sue you (or you and your insurer) for damages after an accident. Subrogation is an ordinary part of many insurance claims.

How to Handle an Insurance Lawsuit

If your insurer or another insurer is suing you, then you may need to take certain steps.

Some of the ways to handle an insurance lawsuit include:

• Review the Policy: Determine whether a breach of the insurance contract actually occurred or if the insurer might be exploiting a lack of familiarity with the policy. Carefully examine the terms, exclusions, and restrictions to fully understand the agreement.
• Gather Evidence: When faced with accusations of insurance fraud or misrepresentation, compiling extensive evidence to dispute the claim can strengthen the case.
• Understand Policyholder Rights: Policyholders are entitled to specific rights, including receiving payouts and legal protections. If an insurer initiates legal action for a potentially invalid reason, it is important to take appropriate action.
• Consult a Public Adjuster or Insurance Attorney: In cases of significant lawsuits or disputes, seeking professional guidance from a public adjuster or insurance attorney can be crucial. Losing an insurance lawsuit could result in substantial financial losses, making expert advice invaluable for determining the best course of action.

Final Word

Insurance companies can and do sue policyholders.

Sometimes, your own insurer will sue you. In other cases, another insurance company will sue you – say, to recover damages after a car accident where you were at fault.

Contact ClaimsMate today for a no-cost, no-obligation consultation with a public adjuster.

Stephanie Corona

Stephanie is a property insurance claim expert with over 20 years of experience working as an insurance adjuster, expert witness, appraiser and umpire. She is passionate about sharing her expertise, knowledge, tips and training to help both property owners and Public Adjusters in their pursuit of effectively managing claims and recovering the claim settlement they deserve after a loss.