Auto Insurance
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Bill Stoddard was driving one of his colleagues to work one sunny morning when suddenly they were sideswiped by an uninsured driver who had veered into their lane of traffic. Bill's car careened out of control and rolled over, inflicting serious injuries on both him and his passenger. Bill's medical and hospital bills alone exceeded $30,000. His passenger's were over $50, 000. In addition Bill was unable to work for over five months, his passenger was out for over a year. When his insurer offered only $45,000 under their $200,000 Uninsured Motorist limit, Bill protested. He dug out his policy to learn that he had agreed to a Binding "ADR"agreement that contained conditions that were very disadvantageous to him. The arbitrator had to be selected from a group of people who made their living from business they received from insurance companies; it would take months before the hearing would be scheduled, the arbitrators fees would be in the thousands of dollars and were not recoverable; he would be at a big disadvantage if he didn't have a lawyer, and his lawyers fees were not recoverable either. On top of that there were expert witness costs, pre-hearing deposition and discovery expenses. The list was endless. Bill contacted the company to just settle for whatever he could get. "I'll see what I can do for you," said the adjuster. It turned out the adjuster couldn’t do much. The company coughed up another $5000. "Take it," suggested the adjuster sheepishly, "take it and call it a day." "This ADR thing is really one sided." thought Bill. "Why didn't I look at this before I bought the policy?"
The Most Common Problems Involving Automobile Insurance
INDEX
Filing Claims
Let's take a detailed look at the Automobile Insurance policy, learn how to understand how to ensure we get what we're paying for, then how to use that knowledge in the event of a claim.
Liability Coverage in No-Fault States Generally, in No-Fault states, your insurance pays for your bodily injuries and the other driver's insurance pays for that person's bodily injuries, regardless of who caused the accident. In most no Fault states, you cannot sue for your own injuries unless:
Even in most No-Fault states, the person who caused the accident is still responsible for paying for everyone's property damage. (See Property Damage Coverage) Liability Coverage in Fault States This pays, up to the dollar limits of your coverage, for the other driver's injuries and property damage when you are at fault in causing an accident. Liability insurance should cover the following:
Collision Coverage Collision Coverage pays for damages you cause to your car as a result of a collision with anything (car, pole, fence, wall, etc.). It pays up to the limits of this coverage, minus your deductible. For example, if you back into a wall causing $2500 in damage and you have collision coverage with a $1000 deductible, your company will pay $1500. Comprehensive Coverage Comprehensive Coverage pays for damage to your automobile when the damage is caused by anything other than a collision, such as theft, fire, tornado, lightning, etc. Again, it only pays up to your limits and subject to your deductible. Medical Payment and Physical Injury Coverage This pays, up to your limits, for your own medical expenses and those of any one else in your car. Physical Injury Coverage usually does not pay for the other driver's personal injuries or those of his or her passengers. (See Liability Coverage) In a "Fault" state, if the other driver was responsible for the accident, you may elect to file a claim with his or her insurance company. This is called a third party claim. Third party claims pay for more types of losses because the victim is entitled to "all damages actually caused," including lost wages, pain and suffering, and other damages. Uninsured Motorist (UM) Coverage Uninsured Motorist Coverage (UM) pays, up to the policy limits, for your injuries caused by an uninsured driver. Some states require UM coverage. Underinsured Motorist Coverage (UIM) Underinsured Motorist Coverage pays for bodily injuries caused by a driver whose limits are too low to cover all of the costs of the accident. Your insurance company may seek to recover as much as possible from the uninsured driver, but it must pay you directly up to the policy limits of your UIM coverage. Some states require UIM coverage. Miscellaneous Auto Insurance Coverage Additional types of coverage may also be purchased, such as towing, labor coverage and rental reimbursement. For every type of coverage listed above, you must realize that there are many exceptions, exclusions and limitations . These are discussed in some detail elsewhere on the site. For now, remember that the mere fact that you have a particular kind of coverage does NOT mean that the insurance company will pay any or all of your costs. For example, Auto Rental Reimbursement may not pay all of your car rental expenses. It may cap the amount you receive per day and the number of days you may receive it.
Sometimes it seems that what is covered on Page 2, is limited on Page 5, subjected to exclusions on pages 6, 7, and 8 and capped on page 11. Your Preparation Before Meeting with an Auto Insurance Sales Representative It’s important for you to think your situation through before meeting with a sales agent. This is because the sales process itself can be distracting, and it is better for you to ask yourself these questions beforehand. Liability Coverage Preparation As mentioned, Liability Coverage pays for the other driver's expenses resulting from the accident. The two types of Liability Coverage are Bodily Injury Coverage and Property Damage Coverage. Bodily Injury Coverage pays for the other driver's (and any passengers in his or her car) present and future medical and/or rehabilitation expenses, present and future lost wages, pain and suffering, and other general expenses. Property Damage Coverage pays the cost of having the other driver's damaged property repaired or replaced. Keep in mind that more than one car may be involved in an accident. In addition, Liability Coverage should pay for your legal expenses and part or all of a settlement or judgment against you.
As part of your preparation, add up the total net worth of your family's assets. Include stocks, bonds, savings, retirement accounts, equity in your home or other properties, the value of any businesses in which you have an ownership interest, etc. It does you little good to have $100,000 worth of liability insurance if you have $300,000 worth of assets. Add it up. Minimum Bodily Injury Limits in No-Fault States: Every No-Fault state requires a minimum amount of Bodily Injury Liability Coverage. Under most No-Fault statutes, you may still be sued when (1) specified injuries are caused; (2) the other party's expenses exceed the amount in the statute or (3) a death resulted from the accident. For this reason, as in Fault states, you should purchase more than the minimum amount required by law. Most people have assets to protect that are worth far more than the minimum requirements. Minimum Liability Limit Requirements in Fault States: Most Fault states require a minimum amount of coverage. You can certainly purchase higher limits, and this is usually a good idea, particularly considering the cost of repairing or replacing another person's car, the number of cars and people that may be involved in any one accident, the rising cost of medical expenses and the possibility of causing serious and debilitating injuries in even a moderate accident. Collision and Comprehensive Coverage Preparation As mentioned, Collision Coverage pays, up to the policy limits and subject to the deductible, for damages to your car when it collides with anything - a fence, a tree, another car, a pole, a moose, whatever. Comprehensive coverage pays for theft or damage resulting from things such as hail, earthquakes, vandalism or flying rocks. Again, payment is subject to your deductible. Collision and/or Comprehensive Coverage may pay for certain types (but not all types) of damage to personal property in the car. Examples, depending on the specific coverage, may include stereos, tapes, CDs and car phones. Most policies cap the amount of money you may receive for damage to personal property. Comprehensive and Collision Coverage are usually elective. You do not have to purchase this coverage unless required by your lender. Comprehensive and Collision Coverage can be very expensive. So, the question is: How much will the Collision and/or Comprehensive insurance cost and is it worth it? Write down the value of every automobile listed on your policy (if you do not know the value, click here: Kelly's Bluebook to estimate the value of your automobile). If your automobile is old and not worth much, you may want to forego purchasing Comprehensive and/or Collision Coverage. However, with the high cost of automobile repairs, it is a judgment call you must make. Another issue to think about is whether it makes any difference to you to be able to take your car to an auto repair facility of your choice. To some people this is important. Others couldn’t care less. There can be a big difference in the quality of the work. Also, does the policy permit the use of "after market" parts (fenders, bumpers, etc.), which are cheaper for the insurance company but which may be inferior and also less safe, or is the body shop required to use factory manufactured replacement parts?
Important additional questions about Collision and Comprehensive coverage to ask your sales representative might include:
Med Pay and/or Physical Injury Coverage Preparation The types of coverage that pay for you and your passengers' medical expenses differ in different states. Questions about Med Pay and Physical Injury Protection (PIP) should include:
Important additional questions about Med Pay and PIP might include:
Should you purchase any Miscellaneous Coverage options? Additional types of coverage may be purchased for minimal fee costs. These include such things as towing and labor coverage and rental reimbursement coverage. Towing and Labor Coverage pays for all or a portion of the cost of towing your car to a place where it can be fixed. Rental Reimbursement pays a per diem rate for the cost of your having to rent a car while your insured car is being repaired or replaced. Ask how much it costs to rent a car in your area and if there is a cap on how much the insurance company will pay per day for you to rent a car while your vehicle is being repaired. Whether you should purchase additional types of coverage depends on whether you already have such benefits from other insurance or promotions. If so, you may be wasting your money to duplicate such coverage. Factors Used to Determine Your Premium In determining auto premiums, insurance companies rely on such factors as:
Individual Discounts on Premiums When buying a policy individually, most insurance companies offer a number of inducements to prospective policyholders. These are offered as marketing devices. Before purchasing insurance, familiarize yourself with the different types of discounts available so that you can inquire as to the ones for which you may be eligible. Some drivers are considered less risky than others. Some of the more common "discounts" include:
Foregoing collision coverage Collision coverage is one of the most expensive components of automobile coverage. Excluding collision coverage entirely will greatly reduce your premiums. On the other hand, people do occasionally run their cars into concrete parking lot pillars and trees.
Note on on-line price comparison sites There are dozens of on-line insurance sites that provide comparison quotes for different types of insurance. The problem is that these sites are never run by coverage experts. As a result you don’t know what you are getting, and not getting, except in the most general sense. In addition, none of these sites will help with claims issues or resolutions. They do not offer this service, because they do not know anything about claims.
Meeting with the Sales Representative Agents and Brokers Now that you have thought through the key coverage and limits issues, you are ready to sit down with an insurance representative to discuss a potential policy. You may purchase a policy from an insurance agent, broker or possibly directly from the insurance company. As mentioned in the FAQs, two types of agents are Captive Agents and Independent Agents. Captive agents work for one insurance company and sell only that insurance company's policies. Independent agents sell policies from a number of different insurance companies. Both types of agents are representatives of the insurance companies whose policies they sell. Therefore those companies are responsible for what they say and do. A broker may either be considered your representative, or the insurance company’s. If the broker is paid directly by you and represents your interests, the insurance company may not be responsible for the broker's representations about the potential policy. However, if the broker is paid by the insurance company, the broker may be acting on behalf of the company and therefore the company would be responsible for any statements made to you. Promotional Materials As with any type of insurance, save every pamphlet, advertisement or promotional piece relating to any policy you are considering. If an ad implies something is covered that is not included in your policy, that fact alone might well-obligate the insurance company to honor a claim. The Application We mention this elsewhere but it can not be overstated. When it’s time to fill out the application for insurance REMEMBER THIS:
For an insurance company to do this in most states, the misstatement or omission must be MATERIAL (significant). This means that it was something the insurance company relied upon when deciding to accept you as a policyholder. But this is nothing to fool around with or take lightly. Do not sign the application until you have checked it carefully for accuracy. After signing the application (which may be required under penalty of perjury), photocopy the application and keep the copy in your insurance file. TIP: Some types of insurance contracts may contain an Incontestability Clause, which can limit an insurance company’s right to deny a claim based on a material misrepresentation in the application, once the policy has been in effect for a specified time (usually two or three years). Alternative Dispute Resolution As with other lines of insurance, some auto policies contain Alternative Dispute Resolution (ADR) provisions. The ADR issues that need to be considered are:
Maintaining your insurance. Updating Coverage Keep your auto insurance policy up-to-date. Have you purchased a new or additional car? Are there any new drivers in your home that should be included as insureds? If you did not meet the requirements of a "good driver" when you first purchased insurance, do you meet the requirements now? Have your assets increased so that you should purchase more liability insurance? These are a few examples of things that can change after you first purchased your policy. When circumstances change, call your insurance company or agent and notify them. Follow up with a letter confirming your call. Keep a copy of the letter in your Notebook. Some updates may not modify your policy or change your premium at all. Others may require you to cancel your policy and purchase a new one (you will be refunded any pre-paid premiums). Or, you may simply have to add an endorsement or floater. Renewals (and Non-Renewals) Once you have been issued an insurance policy and paid your first premium, your automobile insurance coverage begins. Your coverage should continue in effect until the anniversary date of your policy or until the policy says it will end (as long as you keep on writing out the checks). Usually, you can renew your policy by simply continuing to pay the premiums. Be sure to read the notice of renewal in case the insurance company requires you to do something more. Before you decide to renew your policy, review it to see if it should be updated. The insurance company may also decide NOT to renew your policy. It can usually do this for any reason. However, most states require that the insurance company give you adequate notice (usually 30-60 days) of its decision not to renew. This is intended to provide you with time to purchase insurance elsewhere.
Cancellations As with all lines of insurance you can cancel your insurance policy at any time and for any reason. If you do so, you are entitled to a refund of any unused portions of pre-paid premiums.
In contrast to the above, in most states the insurance company are limited in their ability to cancel a policy in mid-term. They can usually only do so for things like non-ayment of premiums, filing of a false claim, conviction of drunk driving or leaving the scene of an accident. Auto Insurance Claims Hopefully you will never suffer a serious loss or have a large claim filed against you. But if you do, be aware that insurance companies, like any other business, want to make a profit and the bigger the profit the better. Some carriers allow this goal to get in the way of fair decision making and claims processing. So, prepare yourself before making a claim. Learn what to do at the scene of the accident and before you file a claim. Scene of the Accident If an accident occurs, do the following at the scene of the accident: Do not make any statements to the effect that you were at fault. Wait until you have had time to get over the shock and consider what happened. Record pertinent information. Our Automobile Insurance Forms contains a form for your glove box. This card provides the necessary information you need to record at the scene of the accident. If you do not have an Auto Insurance Scene of the Accident form, at least remember to record such things as:
Preparing before submitting a claim If anyone suffered bodily injuries or property damage, you must:
Other things that you should do before filing a claim include:
These claims would include claims under your own collision, comprehensive, uninsured motorist or underinsured motorist coverage. These claims also include most no fault claims (if you live in a state with a no fault law). In order to determine the amount of the loss, obtain detailed repair bids from at least two different repair shops. These should be shops of your own choosing. Make sure that the shops use factory replacement parts, not after market parts. The latter have been known to pose quality and even safety problems. The amount of this loss that your company is responsible for paying is the reasonable repair amount minus any deductible or other applicable policy limitation. These claims would include med pay, uninsured motorist or underinsured motorist claims. They also include most No-Fault claims (if you live in a state with a No-Fault law). For med pay, in order to determine the amount of the loss, you must ascertain the amount of your present and future medical/hospital expenses. Obtain this information from your treating doctors. Do not sign any settlement agreements involving a med pay claim until the injured person's condition has stabilized and a true diagnosis and prognosis can be rendered. For uninsured and underinsured motorist claims, in most states you are entitled to damages beyond your medical and future medical bills, such as damages for loss of earnings, future loss of earnings and pain and suffering. This is so because your insurance company steps into the shoes of the uninsured or underinsured driver. They are responsible for paying you for all of the damages you are caused- not just your medical bills. Calculate these items carefully. If necessary, obtain the assistance of a lawyer in helping you put a dollar amount on those aspects of your loss. The same thing is true for estimating losses for bodily injury in No-Fault states. As mentioned earlier, the specifics of No-Fault provisions differ from state to state. To find out your recovery rights for your own bodily injuries or those of other insureds, check your policy provisions carefully.
Liability claims submitted to your insurer. These would include requests (tenders) for a defense and indemnity in situations where a claim or suit has been filed against you. If the claim is covered by your policy, your company is responsible for paying the costs of your legal defense and for indemnifying (paying on your behalf) any settlement or judgment obtained against you and within your policy limits. Your company probably has the right and duty to settle a liability claim on your behalf - either with or without your consent. If they should refuse to settle such a claim where a demand has been made that is for an amount of money within your policy limits, the carrier may be obligated to pay any ultimate judgment- even if it is beyond your limits. This is dependent on the particular facts of the case and the law of the state in which you live. YOUR DUTIES after submitting an automobile insurance claim As with other lines of insurance, after you submit an auto claim of any type, you must:
Again, everything you submit to the insurance company should be precise and correct. Never overestimate, misstate or exaggerate any aspect of the claim. If you do so, you will lose all credibility and may give the insurance company a basis for denying your claim entirely. If you do make a mistake, correct it in writing as soon as possible and keep a copy of the letter in your file. What happens AFTER you file an automobile claim The insurance company must respond promptly to your claim.
For Fault insurance liability liability claims where you were at fault, your insurance company must determine whether a suit against you is covered by the policy. If your insurer agrees to represent you, but only with a "Reservation of Rights," that means your insurance company may be contending that the suit against is not covered under your policy. An example of this would be if you knowingly allowed an un-licensed driver to operate your car. In such a situation, you may wind up personally responsible for paying any judgment against you and in addition, may be asked to reimburse your insurer for all legal fees and costs incurred in your defense. If your insurer is defending the case against you with one of these “reservations of rights” the attorney representing you in the case may have a "conflict of interest." This means that the attorney, who is being paid by the insurance company, has a conflict between representing your interests (in wanting there to be insurance coverage applicable to the claim) and those of the insurance company (in contending that there is no coverage). In such a situation, you should ask the insurer to appoint, and pay for, an independent attorney who represents only YOUR interests in the case.
Negotiating. Alternative Dispute Resolution (ADR). Time limitation provisions. State Departments of Insurance. Negotiating is really about five things:
If you have prepared and documented your claim carefully, and you know the ins and outs of your policy, you are way ahead of the game. Understand not only your position, but the company's position as well. What are they saying and why are they saying it? Are they wrong? If so, why? Exactly. What would be the most effective way of convincing them to change their position? And if not, how should you go about reevaluating your position?. Many negotiators believe you should start out with a high demand. Otherwise, you have nothing to bargain down from and you run the risk of creating an early impasse or of winding up with much less than you are entitled to, simply because bargaining is a part of the process. Others say that an unreasonably high demand creates an antagonistic atmosphere and that it is an artificial and counterproductive tactic. Either way, there is no substitute for painstaking preparation and analysis. That way, when you make a demand, you can back it up with the necessary facts and arguments. If reasonable attempts to negotiate a resolution of the claim fail, most policies either require appraisal, mediation, or arbitration. Many ADR provisions, as written by the insurance company, are expensive, time consuming to administer, and limited in what they can accomplish. While you are considering the resolution approach you wish to take, there is another thing you had better look up in the policy: contractual limitations period. Some policies contain provisions restricting your ability to recover benefits by requiring that any "claim" be filed within a certain time (typically one year) of the date of the loss (state law usually gives you one or two years from the date the claim is denied. But, if your insurance contract says something different and you signed it, then the insurance contract may control). If your policy contains such a provision, watch out. It could mean that unless you do file a claim against the company within the designated period, you lose all right to do so. Things you should not do include: DO NOT cash partial checks from the insurance company unless you have a statement in writing that this is only a partial payment and that you are not releasing the company from further obligations. DO NOT under-settle your claim. Be fair and reasonable. But if you are right, stick to your guns and do not be intimidated. DO NOT make threatening phone calls or write intemperate letters. Negotiating The biggest problems encountered in the negotiating process arise when one or both sides are poorly-prepared, hold an untenable position, or are unwilling to compromise even in a situation that cries out for it.If you have followed the steps outlined above, these problems should be minimized. The negotiating process is greatly enhanced when both sides are knowledgeable and open-minded. In such situations the negotiation process comes down to five important principles. You should:
Mediation If, in cases where the amount in controversy is substantial, you are unable to resolve the claim directly with your company, you should then consider contacting an outside mediator. You can do this whether your policy has an ADR provision in it or not. Mediation is a process whereby an independent third party, chosen by the agreement of both sides and experienced (in this case in insurance matters), steps in and tries to facilitate a resolution of the disagreement. Mediation, unlike certain types of arbitration, is not binding. No decisions are made by the mediator. Instead the mediator simply tries to bring the two opposing sides together in a joint effort to avoid litigation. There are professional mediators available through organizations such as The Judicial Arbitration and Mediation Services (JAMS), and other organizations which promote mediation services. Be sure your mediator is objective and does not have a built-in tendency to favor one side or the other.
Insurers are keenly aware of the cost of prolonged internal claims processing and ADR options. For that reason, the company might be willing to have an experienced third party attempt to mediate a resolution to the impasse. This is so even if your health policy contains an ADR provision. Your provider would far prefer an inexpensive and non-binding mediation process, to the time-consuming, more formal expense of binding arbitration. The provider can assign a less highly skilled claims employee to the mediation process than would be required for formalized binding arbitration. Although it may often seem hopeless, a good mediator armed with experienced, non-threatening, persuasive skills, can often bring even the most headstrong parties together. Note carefully that there are provisions under the laws of every state that place absolute restrictions on the length of time a person has to file a civil suit for damages. These laws are called statutes of limitations. The time limits imposed depend on the legal theories involved. For example, the statute of limitations for a breach of contract case may be different from the statute of limitations for misrepresentation or fraud causes of action. You need to consult with the laws of your state on this. In addition, there are often limitation provisions in the insurance contracts themselves. Many policies impose such contractual restrictions on how long an insured has, following a claims denial, to file a claim or suit against the company. This is known as a contractual statute of limitations. If your agreement or contract has such a provision and you do not file a lawsuit within the time period set forth, you may lose all of your rights to recover anything on your claim - regardless of how valid it might be. You must take these provisions very seriously. They are usually strictly enforced. In many states, the Duty of Good Faith and Fair Dealing, which is implied in every insurance contract, allows you to recover losses and damage covered by an insurers unreasonable conduct. These recoverable losses can include (depending on your state) all damages caused by unreasonable delay, underpayment or claims denial. In many states, you can also seek general and exemplary damages. Exemplary damages are intended to reduce the profitability of unacceptable conduct.
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Always read the exceptions, exclusions and limitations listed in a policy before you purchase.
Carefully consider your liability limit, which is the maximum amount of money the insurance company must pay on a liability insurance claim minus the deductible. If your limits are too low, you will be paying money out of pocket and putting your assets at risk. If your limits are too high, then you will be over-paying in premiums. 
The answers to the application questions are what the insurance company relies on when it decides whether to insure you. You must therefore read the questions yourself and answer them FULLY, HONESTLY AND LITERALLY. If the insurance company later learns that an answer was wrong or incomplete, it may be able to RESCIND or VOID the policy and DENY an otherwise valid claim. This could be a real disaster to you.