Claims litigation refers to disputes between an insurance company and its policyholder or an injured party. The most common example is a car accident. Claims handling often begins before a lawsuit is filed, but if litigation becomes unavoidable, the case is turned over to legal counsel for the insurance company. The cost of claims litigation can be high, and if the lawsuit is not resolved, it will go to trial.
While the words can be used to describe other types of claims, the term “claims litigation” is generally used to refer to disputes that arise between an insurance company and its policyholder, or between an insurance company and someone who has been injured by an insured. Insurance companies have an obligation to pay claims resulting from accidents covered by the insurance policy purchased by the insured. In some cases, the insurance company denies liability for damages, in which case litigation becomes a possibility. If the policyholder, or a person injured by the policyholder’s actions, files a lawsuit to obtain compensation for the damages denied by the insurance company, the parties are said to be involved in a claims dispute.
The most common example of a claim that can lead to litigation is a car accident. In most jurisdictions, drivers are required to take out liability insurance in the event they are found responsible for a traffic accident. If the occupants of the car involved in the collision are unwilling to accept an out-of-court settlement for their injuries, or if the insurance company denies liability, then the insurance company must sue.
In reality, claims handling often begins long before a lawsuit is filed. While some claims made by an insured or injured party are resolved easily and quickly, many are not. When it becomes apparent that the policyholder or injured party is unwilling to accept an initial offer of compensation from an insurance company, the insurer typically takes the case to its claims management department. The claims management department often consists of at least one lawyer and a number of claims management specialists. The task of the claims management team is to avoid disputes regarding actual claims.
If litigation becomes unavoidable, the claim is typically turned over to legal counsel for the insurance company. The cost of claims litigation can be quite high for the insurance company once an actual lawsuit has been filed. Claims are civil suits and are, therefore, brought by the plaintiff, or the injured party, bringing an action against the responsible party. Technically, the lawsuit should be brought against the policyholder, not the insurance company; however, the insurance company often has an obligation to provide legal advice and defend the insured. If the lawsuit is not resolved during the litigation process, the case will go to trial and a judge or jury will determine liability.
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