What To Do If an Insurance Company Threatens to Sue You

Dealing with threats of a lawsuit from an insurance company can be an intimidating and stressful experience As upsetting as it may be to receive legal threats, it’s important to stay calm and take the proper steps to protect yourself. In this comprehensive guide, we’ll provide tips on how to respond if an insurer indicates they may file suit against you

Why Do Insurance Companies Threaten Lawsuits?

There are a few common scenarios that can prompt an insurance provider to threaten their policyholders with legal action

• Claim denial – If your claim gets denied but you think you’re entitled to payment, the company may reinforce their denial through threats of a lawsuit. For example, if you make multiple questionable claims for water damage, they may suspect fraud.

• Settlement disagreement – Insurers often try to settle claims for much less than victims believe they deserve. If you reject their settlement offer, they may use threats of litigation to get you to accept it.

• Dissatisfaction with resolution – Even after settling a claim, you may remain unsatisfied and threaten further legal action against the insurer. They may then preemptively threaten to sue you.

• Questionable claims – If they suspect misrepresentation or fraud in your claim, they may threaten to sue to avoid paying it.

• Contract disputes – Disagreements over policy terms, premiums owed, or the scope of your coverage can also prompt lawsuit threats.

• Subrogation – If they pay another party for damages caused by you, they may threaten legal action to recover their costs.

Threatening letters are usually a precursor to an actual lawsuit being filed. It’s important not to ignore these letters in hopes that the issue will resolve itself.

Steps to Take if Threatened with a Lawsuit

If you receive a demand letter or any formal notice of potential legal action from an insurer, here are some key steps to take:

• Carefully review the letter – Make sure you understand exactly what they are alleging or demanding. Identify what specific dispute prompted the threat.

• Gather supporting documents – Collect any evidence you have that supports your position, such as claim paperwork, policy documents, photos, communications, etc.

• Review your policy – Look over your policy terms to see if they actually support the stance being taken by the insurance company.

• Contact state regulators – If the threat seems questionable, contact your state insurance department to ask if the insurer is following proper protocols.

• Send a response letter – Professionally respond in writing before the specified date, explaining your position on their allegations.

• Hire legal counsel – For large or complex issues, consult with an attorney experienced in insurance litigation.

• Negotiate resolution – Make reasonable efforts to negotiate a settlement before the insurer proceeds with filing suit.

• Consider mediation – If negotiations fail, propose resolving the dispute through mediation with an impartial third party.

• Prepare your defense – If it goes to court, work closely with your attorney to build the strongest defense using supporting evidence.

The goal should be resolving matters prior to an actual lawsuit if feasible. But be ready to vigorously defend yourself in court if required.

Common Types of Insurance Company Lawsuits

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

• Denial of claim lawsuits – This occurs when your claim gets denied but you believe you’re owed benefits. The insurer sues to uphold their denial. Your defense needs to prove your claim’s validity.

• Settlement disagreement lawsuits – If you reject a settlement offer as inadequate, the company may sue to compel you to accept it. You’ll need to show the offer doesn’t sufficiently cover your damages.

• Contract dispute lawsuits – The insurer sues over disagreements around your policy terms, coverages, premiums owed, etc. Your defense relies on the policy language supporting your interpretation.

• Subrogation lawsuits – If they pay damages to another party that they allege you caused, they may sue you to recover their costs. You need to prove you weren’t liable for the claimed damages.

Having experienced legal counsel can help level the playing field when being sued by a well-resourced insurance company.

If You’re Sued by an Insurer, Do This

If you’re served with a lawsuit summons from your insurance provider, here are some key steps to take:

• Immediately provide copies of the suit documents to your agent and insurer. They need to be aware of litigation against their policyholders.

• Review your policies to see if you have coverage to assist with legal defense fees. “Duty to defend” provisions may apply.

• Hire an attorney experienced with insurance company lawsuits for guidance. These cases can get legally complex very quickly.

• Gather evidence and witness statements that support your side of the disputed matter.

• Consider countersuing for any damages the insurer caused by wrongly denying you coverage if applicable.

• Explore settlement possibilities before going to trial if it makes sense.

• Cite any state laws that limit insurer bad faith. Protections vary by state.

• Testify truthfully at depositions, hearings and trial. Jurors often sympathize with individuals over corporations.

• Appeal the verdict if you lose at trial but have valid grounds to dispute the outcome.

While being sued by your insurer can be intimidating, methodical preparation and qualified legal help can lead to the best possible outcome for your situation.

Mistakes to Avoid if Threatened with Legal Action

Some common mistakes to steer clear of if you receive a demand letter or lawsuit threat:

• Ignoring the notice and hoping it will just disappear. This allows the insurer to win a default judgment against you.

• Accepting an unreasonably low settlement due to intimidation tactics. Don’t let threats coerce you into accepting less than you deserve.

• Reacting emotionally or aggressively. Stay calm and communicate your position rationally in writing.

• Failing to thoroughly document evidence that supports your version of events.

• Attempting to handle complex legal disputes without professional assistance. These often require experienced legal help.

• Not carefully reviewing your policy’s terms and coverages. Understand exactly what you’re entitled to.

• Skipping settlement opportunities that could resolve the matter favorably before trial.

• Declining to appeal a verdict you have valid grounds to dispute.

With the right strategic approach, many lawsuit threats won’t actually materialize if handled carefully. Avoid hasty reactions and build the strongest case possible.

Questions to Ask Your Attorney

If you’re facing the prospect of a lawsuit from an insurance provider, here are some key questions to ask your lawyer:

• What might be motivating the insurance company to sue me in this instance?

• What rights and protections do I have under state insurance regulations?

• Are there any viable counterclaims I can assert against the insurer?

• What settlement options should we explore?

• Can we make any claims or defenses under the language of my policy?

• Is it possible to recover damages for the insurer’s wrongful conduct?

• Are there any relevant legal precedents or case law that apply?

• What might our litigation strategy be if this proceeds to trial?

• What are the estimated legal costs I can expect?

• What are the pros and cons of settlement versus trial?

Asking the right questions will help you make informed decisions on responding to the lawsuit threat.

Final Thoughts

Receiving legal threats from insurers can be stressful and alarming. But by responding calmly, gathering evidence, and seeking qualified legal counsel, you can take steps to protect yourself. Make reasonable efforts to resolve the dispute through negotiation if possible before it turns into a lawsuit. If threats do materialize into litigation, methodical preparation and legal support will offer the best chance of a favorable outcome. With a strategic approach, many lawsuit threats ultimately will not end up in court.