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Understanding the Car Insurance Settlement and Negotiation Process
As unfortunate as it may be, many insured motorists who have been in major accidents where they were not at-fault have their claims rejected. Sometimes this is due to the motorist breaking a law, like driving unlicensed, at the time of the accident. Other times, it’s a matter of an insurance company acting in bad faith, which is grounds for a lawsuit. However, most of the time, an agreement or settlement can be reached after a period of negotiation. Below, we answer some of the most common questions we hear about the settlement and negotiation process.
What is a settlement?
While car accident lawsuits don’t often go to trial, lawsuits stemming from an undervalued or rejected claim are fairly common affairs. If the insurer of the driver who caused the accident in which you were involved caused severe pain and suffering, the compensation amount offered by his or her insurance company often fails to be as much as hoped and you decide to file a lawsuit. At this point in the legal process, settlement — resolving the dispute without having to go to trial — is extremely common, but is not always the right answer for your particular situation.
One thing to always keep in mind when debating whether to go to trial is that once a jury decision has been reached, it is final. On the other hand, even after a settlement has been reached, negotiations can re-open if new evidence or charges come to light.
What is a demand letter?
When beginning the process of disputing a claim and seeking adequate compensation for your injuries, one of the first steps to take is to have your attorney draft a demand letter or create one yourself. One of the benefits of hiring a lawyer to guide you through the settlement process is that they have experience drafting demand letters. Personal injury lawyers also know how and when to ask for a settlement amount that is higher than usual in order to give both sides room to negotiate. A demand letter should include the following elements:
Your account of what happened - The first section of a demand letter should include a detailed recounting of your side of the story, including a summary of the accident itself. The letter should use supporting documents, such as the police report, the laws that apply to your state, and any relevant medical records to help support your side of the story. One reason it makes sense to have a lawyer draft the demand letter is that it needs to be written almost as a third-party report, avoiding any emotional language or personal interjections. If you are writing the demand letter yourself, keep your language simple and to the point.
Demonstrating fault - The next step in writing a demand letter is to explain why the other driver is at fault. While you want to write in a respectful and concise manner, don’t hold back any information that will support your case. For instance, if you were struck by a car running a stop sign at a four-way intersection when you had the right of way, indicate that you were following traffic laws while the other driver was not.
Never admit fault - As we discussed in our section on at-fault or tort states, be sure not to admit any fault when writing the demand letter. There is an official process in place for the other insurance company to investigate the relevant information and gather the evidence needed to prove your fault. While you should never lie in a demand letter, the whole point of the letter is to substantiate your side. This means that while you should present the facts truthfully, you should also do so as to make them favorable to your position. The other insurance company always retains the option to request the opening of negotiations if they wish to contest any of your points.
Injuries and medical expenses - Here is where you want to go into heavy detail in describing your injuries and compiling a list of all of your medical expenses. With your injuries, focus on whether their effects will be long-lasting or permanent since those will earn you a greater amount of compensation. Do not lie, but be blunt about the amount of pain you are experiencing and include as much information about your injuries as possible, being sure to use the correct medical terms. For medical expenses, it is imperative that you keep a detailed record of the location of your treatment, the person who treated you, and how much it cost. In some cases, the other driver’s insurance company may ask that you undergo an independent medical examination to prove your claims.
Lost income, losses, and expenses - Here is where you will make note of any work you missed, including how your ability to work was impinged by the injury. Ask your employer for a letter confirming your account. You should include any intangible effects of the car accident, such as anxiety, embarrassment, and general inconvenience. Settlement demand - Lastly, you will need to add up all of the costs you’ve presented in your demand letter that you’d like to claim compensation for and double it in order to give you room to negotiate.
How does a settlement work?
Once the other side has has time to look over the demand letter and respond in kind, the next step is often settlement negotiations. What this means is that there will be a back-and-forth between boths sides in an attempt to negotiate a settlement. If both sides can’t reach an agreement following this period of negotiation, they may agree that a mediator is necessary. A mediator is a licensed lawyer whose duty is to help two sides come to a mutually acceptable outcome. You will receive your settlement if you are able to reach an agreement. If not, the case will then proceed to trial.
Why was my claim rejected?
Claims can be rejected for a wide variety of reasons, such as for your failure to submit all necessary information or due to the insurance company rejecting your claims out of bad faith. While we will break down what constitutes a bad faith rejection below, first let’s discuss some of the other common reasons why your insurer may reject your claim.
Unlicensed or unspecified drivers on your policy - As we discussed in our FAQ section on automobile insurance, many policies will automatically cover those who live in your home if they borrow your car and get into an accident. However, other policies will require that you list all the motorists who you authorize to drive your vehicle so that if someone not specified on your policy gets into an accident, your claim will be rejected. Additionally, if the driver is unlicensed when borrowing your car, that is also grounds for claim rejection.
Premiums not up to date - One of the most common reasons that claims end up being rejected is due to unpaid premiums. Consult your policy so that you know exactly when your premium is due and your on-time with your payments so that you don’t find yourself uncovered after an accident.
Vehicle not suitable for road conditions - Many drivers love the freedom that comes with taking their four-wheel SUV or Jeep off-road. So if you go off-roading in your Honda Civic, chances are your claim for the damages incurred will be rejected as your car would be considered an “unroadworthy vehicle.” However, this can also apply if you failed to make appropriate upgrades prior to the accident, like changing your tires if the thread runs bare or you fixing broken windshield wipers.
Reckless driving or driving under the influence - Insurance policies typically contain something known as the Failure to Take Care clause that handles reckless driving cases when your insurer refuses to pay out the claim. Additionally, there is the Breach of Road Traffic Regulations clause, which means that if you were breaking a traffic law at the time of the accident such as speeding, your claim could be rejected. Lastly, if you were driving under the influence of alcohol or other drugs, your claim will most definitely not be paid.
No write-off cover - In some cases, auto insurance tax can be filed as a deductible on your tax return, but only if it is explicitly stated in your policy. You can also exclude drivers from your policy so you’re not liable for the costs in the event they get into an accident.
Telematic indication of driver error - Telematic devices track and find your car when it is stolen. However, they can also be used to monitor your driving with certain insurance policies requiring their implementation in order to find whether bad driving or speeding were the causes of an accident. If breaking those traffic laws was found to a factor in your accident, then your claim will likely be rejected. Telematic devices can also be used to reward good driving.
Not having mandatory tracking and security devices - Just like some insurance policies require telematics, other require that a satellite tracking device be installed. If you fail to install such a device, as well as alarms, gear locks, and other safety devices, your claim may also be denied. Be sure to consult your policy to see if there are any such requirements.
No vehicle inspection - A majority of insurance companies require that you receive a vehicle inspection after starting a policy to note any pre-existing damages. Failing to do so could mean you are in breach of contract and are at risk of having your claim rejected.
Business vehicles - As the majority of vehicles are insured for private use — including driving to and from work — you will need to disclose that you also use the vehicle to complete work duties.
Failure to Securely Park Vehicle - Some insurance companies wish to know where it is you park your car at night. If you say that you park it in a secured, locked garage or parking lot, but you’re been leaving it on the street at night and it gets hit or stolen, your claim will not be honored.
When it comes to claim rejections, you hold a good deal of the responsibility to learn your policy’s terms and conditions and do your best to adhere to them, such as learning of any exclusions or whether other drivers are actually covered under your policy. Never be dishonest or withhold information from your insurer. Let them know exactly who will be driving your car and whether it will be used for business as well as private purposes. Ultimate, your policy is a contract between you and your insurer and if you break any of its clauses, you may be stuck paying your claim yourself.
What does “bad faith insurance” mean?
An insurance company has certain responsibilities to the insured when they agree on a policy, the number one responsibility being that it acts in good faith by being honest, acting fairly, and having good intentions. If an insurance company attempts to back out of its obligations to those it insures, it is acting in bad faith. In the case of a car insurance claim rejection, bad faith can take the form of an improper accident investigation, an incorrect property valuation, or a refusal to pay. If your claim is rejected in bad faith, this will generally result in either or both of the following legal actions:
Tort - In the context of a bad faith denial, a tort is a civil wrong. When an insurer breaches its duty by refusing payment on a valid claim, it results in economic injury to you.
Breach of Contract - Bad faith insurance claim denials typically result in the aggrieved party’s lawyer filing a legal action for breach of contract as the insurer has broken its promise to economically protect you through denying your claim.
Ultimately, the legal actions and damages available to you following a bad faith claim rejection will be largely dependent on how your jurisdiction handles bad faith insurance. For instance, some states have laws that forbid bad faith insurance denials in the first place, while others have traditionally allowed such claims to occur due to common law — or laws that come into being as a result of past legal precedents. You will want to do research or consult with a lawyer to find out the rights and limitations of your case. In some states, cases are typically determined by common law or statutory law, which refers to a state’s law books.
How do you determine if your claim was rejected out of “bad faith?”
There is no simple way to define bad faith, which is the result of a particular action or inaction taken by the insurance company. Like other disputes with car insurance companies, bad faith litigation can take the form of settlement negotiations, decision by an arbitrator, or a court verdict. Some of the most common reasons an insurance company is sued are as follows:
- Unfounded coverage denial;
- Not relaying important or time-sensitive information to the claimant;
- Failure to thoroughly and reasonably investigate the claim;
- Refusal to try and reach an agreeable settlement when there is no question as to who is liable;
- Hiding policy limits;
- Not responding to a time-limit demand;
- Use of language that can be found threatening or even the use of blackmail;
- Using deceitful language;
- Lowballing the true value of a claim;
- Not participating in settlement negotiations;
- Failure to give timely response when explaining why a claim was denied.
What types of damages are available to me if I’m found to have received a bad faith claim rejection?
While the types of damages one can seek from bad faith insurance vary depending on your jurisdiction, the following are the most common forms:
- Compensatory damages - These refer to damages that seek to fix a bad faith claim denial;
- Punitive Damages - Damages designed to punish the insurer for the outrageous quality of the bad faith denial;
- Consequential Damages - Compensation for future expenses and any injuries resulting from the insurance company’s bad faith claim denial;
- Legal Fees - Compensation for any costs related to legal services.
Want to learn more about the settlement process and whether it’s the right choice for you? Click here to receive a free, no commitment evaluation from one of our experienced personal injury lawyers today.