Can The Insurance Company Sue Me For Damages?

Posted May 6, 2024 | Personal Injury Blog

When you file an insurance claim, you expect your provider to cover the costs of your injury and losses. However, in some cases, the insurance company may try to get their payouts back. Unfortunately, to recover their losses, some companies resort to suing their policyholders.

If you are such a victim or know someone who is, you have questions. You may be wondering if it is legal for an insurance company to sue its client. And if so, under what circumstances can an insurance company take you to court? 

This article will help you understand the laws and circumstances that may lead to an insurance company suing you for damages.

The Concept of Subrogation

Subrogation is the insurer’s right to sue a third party who caused them a loss. For example, they could sue to recover money that was paid out on a policyholder’s behalf.

To illustrate, imagine you are involved in a car accident for which the other driver is liable. Your auto insurance company will pay out a claim to cover the repairs to your vehicle. Through subrogation, though, the insurer can then sue the at-fault driver to recover the money paid out according to your insurance policy.

Subrogation gives insurance companies the right to be reimbursed for their expenses. However, this does not apply in every situation. Specific requirements must be met for an insurer to exercise this right.

When Can an Insurance Company Sue You?

While subrogation allows insurance providers to pursue third parties, an insurer usually cannot sue their policyholders. However, there are certain situations where an insurer may take legal action against its policyholder.

Fraudulent claims

Insurance fraud is a serious offense. Insurance fraud occurs when someone deceives an insurance company or agent. The individual may do this to obtain benefits illegitimately or to profit financially. 

Some fraudulent practices people may engage in include:

• Exaggerating the severity of injuries to increase their compensation
• Causing collisions or damage intentionally
• Failing to reveal pre-existing medical conditions to raise claim amounts
• Providing fake documents
• Exaggerating expenses of property damage or medical treatments

According to the Coalition Against Insurance Fraud, this misconduct costs the US a staggering $308.6 billion every year. If you are caught submitting false claims, withholding critical information, or deliberately causing damage, your insurer may deny your claim or take legal action to recover any payments made.

Breach of contract

Every insurance policy has a set of terms and conditions. As the policyholder, you have specific obligations outlined in this agreement. If you fail to follow these terms, your insurer may consider it to be a violation of your contract. The insurance company could pursue legal means to recover any losses caused by the breach of contract.

Some common examples of breach of contract practices are:

• Non-payment of premiums
• Misrepresentation of information
• Failure to cooperate
• Violation of policy terms
• Engaging in fraud
• Modification of insured property without notification

Actions affecting financial recovery

Your actions after an incident can hinder the insurer’s investigation. For instance, interfering with the claims process by refusing access or withholding information can undermine the insurer’s assessment. Such obstructive behaviors can have legal consequences. 

You should maintain transparency and cooperation to ensure a timely and fair resolution of your claim. The insurer treats contract breaches seriously because such actions directly affect an insurer’s ability to effectively manage the claim and recovery process.

Reimbursement clause in your policy

Some insurance policies have clauses that allow the company to be reimbursed if they pay out a claim. For instance, if you sue after a car accident and win a settlement, your auto insurer may be entitled to repayment from those funds.

The insurer can sue to recover these funds in the insured’s name. If the insured person files a claim, the reimbursement clause creates a hold on any money recovered. This ensures that the insurance company is repaid for their expenses.

It is important to note that the insurance company’s right to sue you is limited to the specific amount they paid out on your claim. They cannot demand additional compensation beyond what they cover.

Protecting Yourself From Insurer Lawsuits

To avoid a potential lawsuit from your insurance provider, you must uphold your end of the policy agreement. Below are some tips to protect yourself from an insurer lawsuit.

1. Be truthful

Always provide accurate information when applying for coverage or filing a claim. Lying or leaving out important details could give the insurer grounds to deny your claim or even sue you for fraud.

2. Understand your policy

Review your insurance documents carefully. Make sure you understand your rights and responsibilities as the policyholder. This can help you avoid unintentional breaches of contract.

3. Cooperate with investigations

Sometimes, an insurer may request additional information or documents to verify a claim. Be sure to respond promptly and provide all the information needed. Obstructing their investigation could be interpreted as a breach of contract.

4. Exercise caution with subrogation

If you recover damages from a third party after an accident your insurer covered, be sure to notify them. You need to let your insurer know that, on top of the settlement they paid out, you received additional compensation. Failure to do so could result in the insurer seeking reimbursement.

5. Consult an attorney

If you notice any indication that your insurance company may be considering legal action against you, it is wise to speak with an experienced lawyer. An attorney skilled in handling insurance disputes can help protect your rights and negotiate on your behalf.

Know Your Rights as a Policyholder

While insurance companies have the right to recoup their payouts, policyholders also have protection under the law. Insurers cannot simply sue you whenever they feel inclined. The insurer must provide a valid legal basis.

If an insurance provider tries to take you to court unfairly, do not hesitate to fight back. You may be able to countersue for bad faith insurance practices or other violations. An experienced attorney can review the specifics of your case and advise you on the best course of action. 

Building Trust in Insurance Relationships

Some people deliberately commit insurance fraud to receive payouts, while others may unknowingly breach their contract terms. If your insurer accuses you of misconduct, it’s essential to understand your rights and responsibilities promptly. 

Do not wait until the insurance company threatens to sue. Instead, take proactive steps to protect yourself. Seek guidance from a knowledgeable attorney today.

Our attorneys at Fielding Law understand insurance-related matters. Whether you are facing fraudulent claims or subrogation, we are here to provide compassionate guidance and fierce advocacy.

When you partner with Fielding Law, you are not just getting legal representation; you are joining forces with a team committed to protecting your best interests. Call today at (877) 880-4090. Let us fight for your rights, ensuring you receive fair treatment throughout the legal process.