How Can Businesses Challenge Their Insurance Companies in Court?

How Can Businesses Challenge Their Insurance Companies in Court?

An insurance policy is a contract between you and the insurance company. You have the legal obligation to pay your premiums to maintain your policy. The insurance company must cover your damages up to the policy limits, so long as it falls within the policy.

Of course, that qualifier is what the insurance company will use to deny your claim. They may argue that the specific type of damage does not fall within the policy's language or an exclusion covers it.

The insurance company is not the judge and jury, nor does it get the final say over whether they will cover your claim. Any contract dispute is subject to the jurisdiction of the court. A judge (or jury) will tell the insurance company if they need to pay you.

An experienced Chicago insurance litigation attorney can help you navigate through a dispute with your insurance coverage and file a claim on your behalf.

Coverage Disputes Happen Far Too Often

How Can Businesses Challenge Their Insurance Companies in Court

Coverage disputes are a common type of litigation due to the business practices of insurance companies. They often deny individual or entire classes of claims because they want to protect their bottom lines. They can face their own financial issues if they must pay too many claims, either because it will drain their assets or raise their reinsurance rates.

After your business has suffered a loss, your insurance company may think that time is on its side. They know that you need the money, so you can cover the loss and stay in business. They think you may either go away entirely or agree to accept less than you deserve to settle your claim. If the insurance company has a plausible reason to deny your claim, they will not hesitate.

Insurance Coverage Lawsuits Have Been Increasing

Insurance coverage lawsuits have spiked dramatically in the last five years for business and personal claims. Insurance companies have gotten more aggressive about denying claims because their losses have mounted. Rising inflation has increased the value of claims, and insurance companies may have priced the policy before prices spiked.

The general cycle is that many businesses will suffer a similar loss and make claims against their policy. The insurance company is always looking for a way to cut the money it will need to pay.

If the insurance company ends up paying too many of a certain type of claim, they will look to adjust their own risk. They will either change the policy's language to exclude the coverage or limit the circumstances they need to pay. They may also sharply raise the premiums for the policy. Until the insurance company can better protect itself from the risk, it will make it difficult for businesses to receive rightful benefits under the policy terms.

Insurance Coverage Disputes Are Often About Contractual Interpretation

Insurance coverage lawsuits often come down to how the court interprets the policy's language. Since an insurance policy is a contract, the court will use principles of contract interpretation to determine what the document says.

The first place a court will look is the exact language of the insurance policy. If the term in dispute has a clear meaning, the court will end its inquiry there and rule accordingly. The court wants to enforce the objective intent of the parties when they agreed to the contract.

Principles of Contract Interpretations that Courts Use

If the plain language of the insurance policy is ambiguous, the court will then use other principles of contract interpretation to give meaning to the words at issue.

Here are some principles that a court may use:

  • The insurance policy will be read as a whole, and the court will try to give meaning to each part of the policy that is consistent with the overall document.
  • Specific terms in the policy will prevail over more general terms.
  • A non-technical term will represent its ordinary, commonly-accepted meaning.
  • Courts will interpret an ambiguous contract in light of pertinent usages of trade in industry or locale.

Perhaps most important is the principle that if the court still finds a term in the policy ambiguous, it will interpret that ambiguity against the contract's drafter. Regarding an insurance policy, the insurance company drafts the contract.

Insurance Companies Change Policy Language to Account for Common Risks

Over time, the insurance company finds ways to tighten up the language of their contracts in response to lawsuits and court decisions. If the insurance company loses some cases, they will find a way to eliminate any ambiguities and change the policy's terms to reduce the chances that the court will order them to pay. Insurance companies always find a way to adjust to what they have learned to protect themselves.

Policyholders expecting a particular coverage may be shocked to learn their claim has been denied. However, even when the insurance company changes policy language, the new policy may not contain what the advertising or brochure says.

Policyholders Sue Insurance Companies for Underpayment of Claims

In addition to unreasonable claim denials, the other common area of insurance company litigation is cases when they do not offer enough money to pay your damages. The insurance company is responsible for covered losses up to the policy maximum. However, there will often be a dispute about the extent of your losses and what items may be covered.

The insurance company will try to underestimate the amount of money you deserve. They do this to keep more money in their pockets. The adjusters will use every trick possible to strike individual parts of your claim or undervalue them entirely.

Your business can still face significant loss because the insurance company will not pay your damages. Then, you will have to either negotiate for more money or sue the insurance company.

You Have the Ability to Negotiate Before You File a Lawsuit (Or Afterward)

Negotiating with the insurance company over a claim is part of a time-honored tradition.

The insurance company's initial offer to settle your claim is often just their opening position in negotiations. They expect you to dispute the amount and try to leave themselves room in negotiations. They will make you fight and work to get more money, a little at a time. They hope your business's financial situation will make you take what the insurance company offers rather than continue to fight. If you cannot reach an agreement, you may go to court.

When you hire an experienced attorney for your case, you will instantly get more credibility in settlement negotiations with the insurance company.

Recent Examples of Coverage Lawsuits Against Insurance Companies

There have been numerous instances when businesses have challenged insurance companies in court. In one large group of cases, numerous businesses sued insurance companies for denying claims filed under their business interruption coverage for losses suffered during the pandemic shutdowns.

Restaurants, professional services providers, and entertainment venues filed claims for being unable to remain open during the lockdowns. Insurance companies either claimed that the language of the policy did not cover these losses or they fell into one of the exclusions.

Courts looked closely at the language of the contract to decide the cases. The decisions often rest squarely on the exact words and terms in the policy.

In many cases, insurance companies can successfully defend against lawsuits. However, businesses have won lawsuits when insurance companies did not make plausible arguments to support coverage or claim . These cases are ongoing in state and federal courts, and businesses have been winning more recently.

Bad Faith Can Operate as a Check on Insurance Companies

Bad faith laws are one thing that you have working in your favor. There is an outer limit on what insurance companies may do about your claim. If they go too far, the insurance company itself can be liable.

Here are some examples of examples of bad faith:

  • Unreasonable denial of a claim where ample evidence shows that coverage should apply
  • Failure to adequately investigate a claim before the insurance company reaches a decision
  • Misrepresenting or lying about what the policy covers
  • Unreasonable delays in investigating or paying a claim
  • Failure to defend the policyholder in lawsuits (the insurance company has to defend their policyholder in court)
  • Failure to settle a claim when the insurance company should have leading to a larger liability for the policyholder

Insurance companies are afraid of bad faith claims. They can end up responsible for paying your damages. A jury may also assess punitive damages against the insurance company if the conduct was bad enough. Insurance companies do not want the negative legal precedent or bad publicity to remind the public how they handle claims.

The threat of a bad faith lawsuit may keep the insurance company in line, but you will need an attorney to make this credible. Insurance companies know they can face harsh consequences when crossing a line.

Bad Faith Cases Can Result in Large Verdicts Against Insurance Companies

However, you must clear a high bar to show insurance companies bad faith. The court assumes that everyone acts in good faith unless you can prove otherwise. When you do, the court might order the insurance company to pay your business compensation.

For example, the case in which the U.S. Supreme Court set an important precedent about punitive damages occurred in an insurance company bad faith case, where a Utah court ordered State Farm to pay $145 million. Although the Supreme Court ruled the damages excessive, the case showed the dangers that insurance companies might face when they take things too far.

Hire an Attorney When You Need to Take on an Insurance Company

If your business has a large insurance claim, hiring an attorney before you file the claim may benefit you. Your lawyer can help prepare the claim and represent you in any negotiations with the insurance company. Having a lawyer at that stage may reduce the chances that the insurance company will try to take advantage of your business.

If you do not have a lawyer, you should get one when the insurance company has either denied your claim or made you a very low settlement offer. These things will set the stage for a dispute and possible litigation.

At this point, every communication with the insurance company matters. If you have a strong case, your lawyer will pressure the insurance company and remind them of the possibility that you may sue.

Insurance companies do not like to pay legal fees, especially in large cases. However, they will also rather pay a large legal bill if it allows them to escape an even larger liability. Insurance companies are all about assessing their changing risk, and how they handle claims is no different.

In most cases, there is no risk to you to hire an insurance coverage dispute lawyer. Most attorneys in these cases will work on a contingency fee basis. The lawyer will not charge you unless you can receive money from the insurance company.

If the attorney is the difference between getting no money and payment for your claim, you will find paying a percentage of your recovery a sound investment. If you do not win your case, the lawyer will not charge legal fees from your business.

The Right Business Litigation Lawyer for Your Insurance Dispute

Insurance Litigation Lawyer, Peter M. King

We all hope that insurance companies will do the right thing and provide the coverage your business pays for. Unfortunately, when your company needs insurance benefits the most is often when an insurer will deny your claim, refuse to pay what you deserve, or engage in bad faith tactics.

If you are struggling to obtain insurance benefits, speak with a business litigation attorney immediately. They can review the situation and advise whether the claim denial was wrongful. They can design a strategy to negotiate with your insurance company or file a civil lawsuit, including a possible bad faith lawsuit.

Seek assistance from a business litigation attorney with experience handling disputes between businesses and their insurance companies.