Can Car Insurance Companies Deny a Claim?

Can Car Insurance Companies Deny A Claim?

When you faithfully pay your car insurance premiums every month, you expect that your insurance provider will honor their end of the deal and cover any valid claims that arise. However, many policyholders discover the hard way that insurance

companies do in fact deny claims on various grounds. Understanding the reasons insurance providers can deny coverage and strategies to avoid denial of your auto claims can help ensure you get paid out when the unfortunate happens.

Reasons Insurance Companies Deny Claims

Insurance companies are for-profit entities, so they have a financial incentive to avoid paying out claims when possible. Here are the most common circumstances where car insurers deny coverage:

Providing False Information

One of the clearest violations of your auto insurance policy is providing fraudulent or misleading information when applying for a policy or filing a claim. When insurers discover false statements, they consider it grounds to invalidate the entire policy and deny all claims. Types of application fraud include:

  • Lying about your driving or accident history
  • Falsifying your credit score or history
  • Misstating your mileage or regular routes
  • Providing an incorrect garaging address
  • Failing to disclose all licensed drivers in your household
  • Lying about prior insurance coverage and lapses
Providing False Information
Providing False Information

Lapse in Insurance Coverage

Your auto insurance policy requires that you maintain continuous, uninterrupted coverage for the term of the policy. If you have a gap where your coverage lapsed due to non-payment or other reasons, any incidents during this period would not be covered, leading to claim denial.

Unauthorized Drivers

Car insurance follows the driver, not the vehicle itself. If someone who is not specifically named on your policy was driving the insured vehicle when an accident occurred, the claim could be denied. The only exception is an unauthorized driver taking over the wheel during a medical emergency.

Commercial Use

Personal auto insurance policies do not cover vehicles used for commercial purposes like food delivery services, transportation services, or ride-sharing services. Operating your insured vehicle for business reasons without notifying the insurer is grounds for denial of accident claims or damages.

Bad Faith Claims

Insurance providers are always on the lookout for claims that appear suspicious, inflated, or submitted in bad faith. Common red flags include:

  • Accidents immediately after policy purchase
  • Damage unrelated to the reported incident
  • Suspicious injuries inconsistent with the accident
  • Pre-existing damage being claimed
  • Multiple similar claims in a short period
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Bad Faith Claims

Criminal Activity

Policyholders who use their insured vehicles for illegal activity like drug dealing, robbery, racing, driving under the influence, or intentionally causing damage will have their claims denied. Insurance does not cover losses resulting from criminal acts.

Non-Covered Losses

Standard car insurance policies only cover certain types of losses and exclude others. For example, wear and tear, mechanical breakdowns, damage from insects or rodents,

theft of personal items, and weather events like floods or earthquakes are generally excluded from coverage. Filing claims for these non-covered losses will always result in denial.

Breach of Policy Terms

You must comply with all the terms outlined in your insurance policy in order for the insurance company to pay out claims. Violating any policy terms can provide grounds for denial. This includes:

  • Failing to promptly report accidents
  • Refusing to cooperate with claims investigations
  • Not using approved repair shops
  • Refusing to submit to a medical exam for injury claims
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Breach of Policy Terms

Reasons for Delayed or Partial Denials

While some claims result in outright denial, other times insurers may partially deny a claim or delay processing the claim while investigating further. Here are some of the reasons for delayed or partial claim denials:

Unclear Liability

In accidents where the liable party is not obvious based on the initial facts, the insurance company will conduct a full liability investigation before approving the claim.

This causes significant delays in processing claims where liability is disputed. If liability cannot be fully proven, the claim may only receive partial payout.

Dispute Over Damages

Insurers always conduct their own assessment of vehicle damage or injuries when adjusting a claim. If they do not agree with the claimant on the extent or amount of damages,

the provider will delay payment until their adjusters complete an inspection. The claim may end up getting a reduced payout if the insurer does not agree the damages justify the full claimed amount.

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Dispute Over Damages

Waiting Periods

Many policies have defined waiting periods that must elapse before the insurance company will pay certain claims. For example, insurers may impose a 1-3 day waiting period before considering a stolen vehicle claim. This gives them time to locate the vehicle or declare it unrecoverable.

Deductible Has Not Been Met

Even approved claims will not receive payout until the policy deductible is paid out-of-pocket by the insured. Insurance coverage only kicks in for damages exceeding the deductible amount. This gap results in a delay between reporting the claim and receiving payment.

Shared Liability

For accidents involving shared liability between multiple parties, claim delays often occur while the insurers negotiate the proportional payout each one will make towards the total claim amount. Reaching liability agreements adds processing time.

Third-Party Delays

When someone else is liable for damage to your vehicle, such as in accidents you did not cause, the claim process gets delayed while waiting for the at-fault party’s insurance provider to accept liability and process the third-party claim.

Strategies to Avoid Claim Denials

While no one can guarantee a claim will be approved, you can take proactive steps to reduce the likelihood of denial or delay:

Strategies To Avoid Claim Denials
Strategies to Avoid Claim Denials

Provide Accurate Information-Always provide complete and truthful information when purchasing insurance, renewing your policy, and filing claims. Concealing or misrepresenting facts is fraud and grounds for denial.

Maintain Continuous Coverage-Do not allow your car insurance policy to lapse for any period. Having continuous, uninterrupted coverage is essential for a paid claim.

Update Details Promptly-Inform your insurance provider anytime you change your residence, commute, primary vehicle, drivers on the policy, or usage of the vehicles. Keep them updated.

List All Regular Drivers-Add any other household members or frequent drivers to your policy to avoid unauthorized driver claim denials, or have them explicitly excluded in writing.

Disclose All Vehicle Usage-Note any commercial use, modifications, accessories, or ride-sharing services related to your insured vehicles. Selected coverage enhancements may be required.

Document the Scene-Take ample photos and notes documenting the accident scene, witnesses, etc. to establish facts about liability and damages.

Report Incidents Promptly-Contact your insurer as soon as possible after any accident or incident to start your claim file. Delayed reporting raises concerns.

Cooperate Fully with Your Insurer-Respond to all requests from claims adjusters promptly and provide complete documentation about the incident. Non-cooperation can impact claim decisions.

Undergo Medical Reviews-Comply with any required medical examinations related to claimed injuries. Failure to comply may result in denial of injury claims.

Use Approved Repair Shops-Allow your insurer to assess damage and contract with approved body shops to complete repairs. Unapproved out-of-network shops increase denial risk.

Pick Your Battles-Avoid filing small claims for minor damage like chips and scratches. Too many small claims raise underwriting concerns, even if the claims are approved.

Review Declarations Page

Carefully examine your insurance declarations page at each renewal to confirm all policy details are current and accurate. Identify any discrepancies.

By following best practices around policy compliance, transparency with your insurer, prompt reporting,

and claims cooperation, you can minimize the odds of facing a denied claim down the road. However, insurers do maintain the right to deny fraudulent, misrepresented, or otherwise invalid claims.

The Claim Denial Appeals Process

If you believe your claim was wrongly denied, you have legal rights to appeal the decision and have the grounds for denial reviewed objectively. Here are the steps in the insurance claim denial appeals process:

Written Denial Notice

The insurance company must provide a written denial notice clearly stating the grounds for denying your claim. It should identify relevant policy wording and instructions for starting the appeals process if you disagree with the decision.

Request Clarification

Speak with your claims adjuster to gain further clarity on the exact reason for your claim denial and options moving forward. Get full details of the denial rationale in writing.

Request Clarification
Request Clarification

File First Appeal

Submit a formal written appeal, including any new evidence or information not already provided to the insurer. Explain why you believe the denial was unwarranted based on the policy terms.

First Appeal Rejected

If the insurer rejects your first appeal, they will provide specific written explanation outlining their reasons for upholding the claim denial.

File Second Appeal

Depending on your policy, you may be able to submit a second appeal request for further review by a management appeals panel or state insurance regulators.

Contact State Insurance Regulators

If the appeals process with the insurer reaches an impasse, contact your state insurance oversight agency for help mediating the claim dispute. Their team can review compliance with regulations.

Pursue Small Claims Court

For smaller claim amounts, you may choose to handle the matter in small claims court instead of civil court litigation with legal representation. The filing fees are low and the process is streamlined.

Pursue Small Claims Court
Pursue Small Claims Court

Settlement

Many denied claims end up settling out of court if it seems likely the policyholder would win in a full trial. Both parties make compromises to save the time and expense of litigating. This results in partial payout of the disputed claim amount.

Common reasons for delayed or partial claim denials

Unclear liability – When fault for an accident is not obvious, insurers will investigate liability more thoroughly before paying the claim. This causes delays. If liability cannot be fully proven, the claim may receive partial payout.

Disputed damages – Insurers conduct their own assessment of vehicle/property damage and injuries. If they dispute the claimant’s assessment, they will delay payment and potentially reduce payout based on their adjusters’ assessment.

Waiting periods – Policies often have defined waiting periods for certain claims. For example, insurers may impose a 1-3 day wait before considering a stolen vehicle claim unrecoverable. This delay is standard practice.

Deductibles – Claims will not receive payout until the policy deductible is paid out-of-pocket by the insured. Even approved claims are delayed until the deductible amount is met.

Shared liability – For accidents involving partial liability between multiple parties, delays occur while the insurers negotiate proportional payouts from each company.

Appeals process for denied claims

Insurer provides written notice explaining the denial reasons, relevant policy provisions, and instructions for starting the appeals process. Contact your claims adjuster for additional clarity on the denial and your options. Obtain the denial rationale in writing.

Submit a written appeal disputing the denial and providing any new evidence supporting your claim. If first appeal fails, the insurer issues a written explanation upholding the denial.

You may be able to submit a second appeal for further review by a management panel or state regulators. The state department of insurance can assist with claim disputes by reviewing compliance with regulations.

For smaller claims, you can choose to handle the dispute in small claims court with simplified procedures. If other options are exhausted, you can file a lawsuit against the insurer seeking damages for wrongful denial of your claim.

Appeals Process For Denied Claims
Appeals process for denied claims

Steps to avoid claim denials

Provide complete and accurate information when purchasing insurance and filing claims. Do not provide any false or misleading details. Maintain continuous auto insurance coverage with no lapses or gaps. Inform your insurer of any changes in drivers, vehicles, usage, address, etc. Promptly update details.

Add all regular drivers to your policy or explicitly exclude them in writing. Note any commercial use and modify your policy accordingly. Promptly report accidents and claims. Provide complete documentation and facts. Fully cooperate with your claims adjuster and investigation requests.

Use approved repair shops. Allow your insurer to assess damages. Carefully review your policy declarations each renewal for accuracy. Follow all terms of your insurance policy.

FAQs

What is a common reason a car insurance claim could be denied?

One common reason a car insurance claim could be denied is if the policyholder provided false or misleading information on their application, such as lying about their driving history or location where the car is garaged.

What makes an insurance company deny a claim?

Insurance companies often deny claims if the policyholder breaches the policy terms in some way, such as letting an unauthorized driver operate the vehicle, failing to pay premiums, or not cooperating with the claims investigation process.

How often do insurance companies deny claims?

Industry data shows that around 10-15% of auto insurance claims end up being denied by insurance providers. The most common denial reasons include late reporting, inability to prove damages/injury, exclusions, and suspected fraud.

What are three reasons you can be denied car insurance?

Three reasons you could be denied car insurance are having a very poor driving record such as multiple recent accidents or serious violations, failing to disclose all household drivers on your application, and having a lapse in prior insurance coverage. These are seen as high risk indications by insurers.

Conclusion

In conclusion, while we pay car insurance premiums with the expectation that claims will be fairly paid, insurers do have a number of grounds on which they can legally deny claims. Reasons for denial range from fraudulent application details,

to lapses in coverage, to failure to comply with policy terms and procedures. Claims may also be delayed or partially denied due to disputed liability, damages, deductibles, and waiting periods. If faced with a denied claim,

you have avenues to appeal the decision and provide additional evidence to potentially overturn the denial. With persistence and documentation, some initially denied claims can ultimately achieve fair settlement.The best approach is to

proactively reduce the chances of denial by being honest with your insurer, maintaining continuous coverage, complying with all policy provisions, cooperating fully in the claims process, and consistently updating your policy as needed.

While you cannot completely safeguard against denial, prudent policy management and claims handling will provide the best protection if you ever need to file a claim with your car insurance provider.

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