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How to Resolve a Dispute With Your Insurer

Disputes can arise with your insurance company for any number of reasons, but they usually arise at claim time, with the cause being a less-than-expected payout or just no payout at all. Sometimes claims can arise due to the unrealistic expectations of the policyholder, and when this happens it is often because the policyholder has never read the policy document or even a summary of the coverage. However, at other times it is not the policyholder at all, it is the insurance company being unduly harsh or arriving at an assessed value which is too low.

Resolving a Dispute
Key Points:

  • Always use your best endeavors to resolve with the insurer directly.
  • If necessary, escalate to a more senior person at the insurance company.
  • Invoke your policy’s appraisal clause.
  • File a complaint with your state insurance office.
  • Consider mediation or arbitration.
  • Use litigation only as a last resort.

If you cannot reach agreement with the insurance company’s claims adjuster on the fair value of a loss, then you should pursue the matter with the insurer first by escalating the issue to the adjuster’s supervisor, or even further to the manager of the claims division. If you still cannot reach an agreement then the next step is to start formal dispute procedures, but you should always use your best endeavors to resolve matters directly with the insurance company first.

If you find yourself in a dispute with your insurance company, you have a range of options for dealing with it. This commences at the lowest level with invoking the appraisal clause in your policy and filing a complaint with your state insurance office, and then progresses through higher levels of formality and cost with mediation, arbitration and, ultimately, filing a lawsuit against your insurer. These options are discussed further below.

The Appraisal Clause

Although most people are unaware of the fact, the vast majority of auto insurance policies contain an appraisal clause which can be invoked in the event of a dispute. If no agreement can be reached on the amount of a claim, either the policyholder or the insurance company can demand an appraisal. In that event the policyholder and the insurance company each appoints an appraiser, and if after considering the merits of the claim the appraisers are unable to reach an agreement between themselves, they appoint an umpire to decide the matter. The following is typical wording for an appraisal clause in an auto insurance policy:

If the Insured and the Insurer cannot agree on the amount of loss, either may demand an appraisal. Each party selects a competent appraiser and the appraisers select a competent and impartial umpire. The appraisers state separately the actual cash value and amount of loss. If they disagree, they submit their differences to the umpire. Any decision agreed to by any two parties is binding on all parties. Each party pays the cost of its appraiser and shares the other appraisal and umpire expenses equally. However, if the insurer submits to an appraisal, it still retains its right to deny the claim.

Each party meets the costs of their own appraiser, and each party additionally meets half the cost of any appointed umpire. A variation on the above, which involves a lower level of cost but which is subject to the agreement of both parties, is for the parties to agree at the outset on a single independent appraiser to decide the matter. Note the final sentence in the sample clause above, which provides that the insurer is not obliged to accept the decision of any appraiser or umpire, and is free to still decline payment of the claim. Although unstated, the policyholder is similarly not bound to accept the appraised value and can pursue other options.

It is important to note that appraisal clauses are only intended as a means of determining disputed values. They are not intended to resolve other matters such as whether a particular event is covered under a policy or not.

State Insurance Office Complaint

Insurance companies, brokers, agents and adjusters are each licensed by the insurance office of the state in which they operate. This means that the relevant state insurance office is able to control the activities of those licensees, including adjudicating complaints from consumers and imposing sanctions in the event of breaches in license terms.

You can file a complaint with your state insurance office online. In that event you will normally receive immediate confirmation of receipt of your complaint, together with a complaint file number. You can then use the file number if submitting additional documentation in support of your complaint. Note that if you post any additional documentation to your state insurance office, you should post copies only as you will generally not be able to secure a return of any original documents submitted.

After your complaint and any supporting documentation has been filed, the state insurance office will normally forward a copy of your complaint to the insurance company concerned and request a detailed response. The response which the insurance company provides is then copied to you. The state insurance office will then consider the complaint and provide a determination to each party, usually within a period of 30 to 60 days following receipt of the insurance company’s response.

It is important to note that state insurances offices are limited in the range of actions which they can take. For example, they are not able to:

  1. Determine the extent of any negligence in an accident, or who is liable;
  2. Compel an insurance company to pay a claim if they have not violated any state law;
  3. Provide legal advice to you.

Even though the range of possible actions by state insurance offices is limited, their involvement in a complaint can nevertheless lead to its resolution. Insurance companies do not like being the subject of a complaint, they do not like the attention given to them by state regulators and they do not like seeing an increase in the annual tally of complaints recorded against them on the official complaints register, which is open to members of the public.

Mediation

An alternative dispute resolution process involves each party agreeing to invite a neutral mediator to help them negotiate a settlement. Mediation is suited to cases in which each party wishes to play an active role in determining the outcome of the dispute, and in which both parties see the benefit of using an impartial and trained professional to help them achieve a satisfactory outcome. Mediation tends to presuppose that each party is willing to compromise to at least some extent in order to resolve the dispute in a timely and cost-effective manner.

Mediation generally consists of the following five stages:

  1. Case preparation and compiling of supporting documentation;
  2. An initial joint session conducted by the mediator with both parties;
  3. Individual private sessions conducted by the mediator with each party;
  4. A concluding joint session conducted by the mediator with both parties;
  5. Agreement and formalization of any settlement.

An important component of successful mediation is that each party is directly involved in the process, or at least has a representative who has full authority to negotiate a settlement.

The benefits of mediation are that the parties are in control of the process and the outcome, and that there is a neutral third party who analyzes the complete case and who helps the parties to explore both conventional and alternative resolutions. Settlement by mediation can often be achieved more quickly and inexpensively than litigation.

Arbitration

Arbitration is a dispute resolution process which is one step short of litigation, and is often referred to as private litigation. It exists in a practical sense in order to avoid many of the costs inherent in the legal process, and to provide a more streamlined but nevertheless robust system for settling disputes. Arbitration can be agreed by the parties involved, required by contract or mandated by state laws. In many cases, arbitration is preceded by mediation, and is a next-stage process if mediation is unsuccessful.

Unlike mediation, arbitration involves the submission of a dispute to an impartial person for a final and binding decision and settlement, referred to as an ‘award.’ Awards are made in writing by the arbitrator, and as part of the cost-limiting nature of the process they tend not to elaborate on the rationale for the decision but simply confine themselves to the decision itself.

The American Arbitration Association is commonly referred to in contracts which contain arbitration clauses, both for the appointment of an arbitrator and for the rules of arbitration, which are extensive.

It is important to note that appraisal clauses in auto insurance policies are often referred to as ‘arbitration clauses,’ but they are not that at all. Appraisal clauses are intentionally much more limited in nature and scope and they incur substantially fewer costs for the parties.

Litigation

If every other avenue for settling a dispute with an insurer has been exhausted, a policyholder has final recourse to the courts through a lawsuit. This is generally the most involved, expensive and time-consuming dispute resolution mechanism available, but sometimes it is the only means by which a policyholder can obtain redress.

However, litigation against your insurance company differs from other dispute resolution means in that you can increase the amount of your claim to include any economic loss caused by the insurer’s refusal to meet your claim, and for the emotional stress caused by the refusal. If your insurer is found to have acted in bad faith, you may even be awarded punitive damages.

If your claim is less than the maximum amount which can be heard by a small claims court (commonly $7,500 for an individual plaintiff), or if you are willing to limit your claim to that amount, a small claims court is a very cost-effective way to sue your insurer. The filing fee is ordinarily no more than $75, and you will not have the expense of legal representation as you are not permitted to be represented by any lawyer in a small claims court. This is a very effective way of seeking redress for small claims which would otherwise be uneconomic to pursue in a District Court.