Reasons Car Insurance Companies Deny Claims

Auto insurance companies reject claims for many different reasons, from not having full coverage to the time that you seek medical help.

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Mathew B. Sims is Editor-in-Chief and has authored, edited, and contributed to several books. He has been working in the insurance industry ensuring content is accurate for consumers who are searching for the best policies and rates...

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years (BBB A+). He is licensed as an agent to write property and casualty insurance...

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Reviewed byDaniel Walker
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UPDATED: Apr 24, 2020

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Things to Remember...

  • If all of the drivers in your household who have access to your covered autos aren’t listed, your claim may be denied
  • When it can be proven that the damages caused were intentional, claims will be denied
  • For injuries, if you don’t seek immediate treatment or medical records don’t indicate an injury, injury claims can be denied
  • Drivers who use a personal auto for business purposes may face claims denial
  • If you don’t disclose the address where your vehicle is primarily stored it could pose problems with claims filed that occur at the address

In a perfect world, you would file a car insurance claim and would then receive money to pay for all of the bills that have piled up as a result of the loss.

Unfortunately, insurance companies are in business to make a profit, and paying out claims takes away from these profits.

This is why claims are investigated and some claims are denied by adjusters after review. When this happens, policyholders must find a way to scrape up the funds to pay for their own medical bills or car repairs.

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Why Policyholders Need to Know Reason for Claims Denials

Understanding exactly why a claim has been denied is imperative as a policyholder. After all, if it’s a simple error that can easily be fixed, picking up the phone to discuss the denial could really help you avoid financial devastation.

If it’s a tactic that’s being used in bad faith, at least you’ll know that you have ground to file a complaint against your insurer.

Either way, reviewing your claims notice will be time well spent in the end so that you collect what you’re due or you can avoid making the same mistakes in the future.

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Watch Out For Insufficient Coverage Denials

If you’ve been injured in a non-fault accident in a state with traditional fault-based laws, it’s your right to file a claim to collect damages under the at-fault driver’s policy.

It’s best to speak with your own insurance carrier to file the claim just so that you can protect yourself.

If you don’t, it’s possible that an unscrupulous adjuster dealing directly with the claimant will deny the claim due to ‘insufficient coverage’.

Instead of denying the claim for insufficient coverage, the adjuster should investigate the claim and then ‘tender policy limits’.

This industry term refers to giving the injured claimant the maximum limit and then advising them to file a lawsuit or an underinsured motorist claim to recover the difference.

What is a ‘bad faith’ claims tactic?

When an adjuster states ‘insufficient coverage’ as a reason for denial, it means there’s no coverage to pay for a claim. In this scenario, there’s actually coverage but not enough to pay for all of the damages.

This is a bad faith tactic that unethical adjusters will use to attempt to get out of paying for a loss. In the industry, bad faith tactics are unethical tactics where an insurer intentionally acts in bad faith when refusing to pay a claim.

When bad faith tactics are used, you have rights as a claimant. This is why you should speak directly with your insurer for legal protection when you experience a loss regardless of fault.

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Materially Misrepresentation of Drivers in the Household

Perhaps the most common reason for claims denial that is considered a fair practice is when you aren’t forthcoming and honest about the drivers who live in your household.

When you apply for coverage, you’re required by the terms and conditions of the policy contract to disclose all household members over the age of 15 and all drivers who have regular access to your cars.

This is true even if someone moves into the home after the contract takes effect.

If there’s a collision in the covered auto, one of the first things the claims adjuster will ask is who was operating the vehicle.

When it’s a listed driver, there’s no coverage issue for violating the rules, but if it’s an unlisted driver you’ll have to go through a series of questioning.

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What’s the difference between a household driver and a permissive user?

The insurance company takes claims with an unlisted driver behind the wheel seriously because it’s possible that the policyholder purposely failed to list the driver to save money.

It’s also possible that it could have been a permissive driver who was covered to drive in rare instances. Here are conditions that must be met for unlisted drivers to be granted permissive user status:

  • Driver was given initial express permission by named insured to drive the vehicle
  • Driver doesn’t live in the household and isn’t related to the insured
  • The vehicle wasn’t being driven for business use
  • Driver doesn’t have regular access to the vehicle
  • The operator had a valid license at the time the loss occurred
  • The operator wasn’t excluded on the policy at the time of the loss

If an excluded driver or a driver who doesn’t fit under the permissive user status was driving at the time of an accident, the claim could be denied for material misrepresentation on your policy.

To avoid this, you should list all household members to ensure they’re rated under your policy and covered.

Common Reasons for Medical Claim Denials

When you claim injuries, you’ll need to be able to show that you suffered injuries as a result of the accident.

It’s recommended that you seek treatment immediately so that you can be checked and your condition is documented. If you don’t, the insurer may attempt to claim that your injuries weren’t connected to the accident.

If you do seek treatment and your medical records don’t show any sign of injury or pain, it might also be difficult to prove you’re entitled to damages.

This is because claims adjusters order your medical records to justify damages. If the records show you have a pre-existing medical condition, the adjuster will argue that the accident had nothing to do with your pain and you’ll need to prove that the accident worsened your pain.

If you’ve filed a claim in the past that you feel was denied in bad faith, consult a representative with the Department of Insurance to discuss the issue. It’s also important that you shop around for coverage elsewhere so that a similar scenario doesn’t arise.

Before you shop, qualify insurers to find the best in the industry. Then, find the best price for coverage by using an online rate comparison tool to retrieve instant quotes by the dozen. Start comparing car insurance rates now by entering your zip code in our FREE tool below!

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