You did me wrong: What to do before you sue your insurer

Are you steaming mad about the way your insuranceclaim was handled? Before you commit to taking your case to court, make sure this is a battle for which you’re truly prepared.

Lawsuits can be very costly in terms of time and energy, as well as cash. They often take a heavy emotional toll on the participants. So don’t enter into litigation lightly. If there is a chance of resolving the dispute amicably, consider that option.

You may never have gone to court before, but insurance companies do it all the time. Their lawyers know the ins and outs of the legal system

Even so, the last thing an insurance company wants to do is get into litigation with one of its customers, says Peter Foley, vice president for claims administration for the American Insurance Association (AIA) trade group.

“Typically, a claim that goes into litigation, just from a handling standpoint, costs twice as much as one that doesn’t for an insurance company,” he says. “We don’t go looking for lawsuits.”

That’s why most insurance disputes don’t result in a lawsuit, and the bulk of those that do are settled before reaching trial, he says.

Here are steps you can take before resting your fate on the scales of justice.

1. Read your insurance policy

This sounds like a no-brainer, but people often neglect to read their policies. A lawsuit will do you no good if the insurer did not violate the terms of your policy. A policy is a contract and you’re responsible for understanding its terms. It doesn’t matter what your agent told you or what you heard in a clever television ad; the rules your company must follow are within the document you signed.

“A lot of times, people do not have the insurance document,” says Edie Mermelstein, a California attorney who handles insurance and consumer issues in Los Angeles and Orange counties. “You need to know up front what your insurance company has agreed to in writing. The written word is what the company is going to be held to.”

According to Michael Cohen, a Los Angeles attorney who litigates against insurers, familiarity with insurance policies is a rare thing among consumers. “Most people even have trouble finding their policies.”

If you don’t understand your policy, consult your agent.

2. Consider your chances of winning

Never go to court unless you believe you have a very good chance of winning. The legal process is too costly to use merely to prove a point or assert your rights. If you file a suit to punish your insurer for things that went wrong during the claims process, you may end up being the one who is punished by wasting time and money.

“The civil justice system is highly imperfect,” says Cohen. “There is not always complete justice.”

3. Work in good faith with your insurance company

Florida public claims adjuster Ron Papa, who represents consumers, says you always should give your insurance company a chance “to right the wrong” before resorting to a lawsuit. Frequently, policies contain dispute-resolution language.

Often the language is nonbinding, however, and policyholders proceed directly into court without seeking a resolution, says Foley. He recommends that you give the process a chance.

4. Find a lawyer with true grit

If you decide to go forward with your lawsuit, you may need to find an attorney who will work on a contingency basis, taking his or her pay out of any settlement you win. If you agree to pay your lawyer this way, the fee will be a percentage of whatever is awarded. In highly adversarial insurance disputes, lawsuits can drag on for years, however.

While a large insurance company can absorb the legal fees, many plaintiff attorneys get restless. They may start worrying about all the time they are investing and whether they ever will be paid. This makes them prone to recommending settlements that may not be in your best interest. Find an advocate who isn’t afraid to go up against the big guys.

“You need someone who has a track record for sticking with it,” says Cohen.

5. Check your bank account

Your lawyer may agree to work on a contingency basis, but you still may incur expenses. If you bring in expert witnesses, they will charge for their services. Attorneys “almost always want expenses to be paid [by their client], but there are attorneys who will take it on a full contingency,” says Papa.

Cohen says attorneys have to be prudent when deferring payment. “We look at it on a case-by-case basis,” he says. “There are cases where we will advance expenses. There are cases where we don’t.”

You may be on a tight budget, but your insurance company won’t face this problem. It will spend whatever it takes, as long as it feels that victory is likely. Before you get started, have a serious chat with your lawyer about how much money you are likely to spend.

6. Get it in writing

Even if you think you have a good reason to sue, your insurance company will work to prove that whatever happened to cause your damages was not its fault. So get things in writing from the beginning. If representatives from your insurer make promises — such as to back up the work of preferred provider contractors — make sure you can prove it in court. If it is your word against theirs, that probably won’t be enough to sway a jury. If you have a letter to back up your claim, you’ll fare much better.

If you hire an experienced public claims adjuster to make sure your insurer lives up to the terms of your policy, you likely will have a written record of how your claim was handled, says Steven Venook, a public adjuster in Florida. “We keep a detailed timeline of events prior to the attorneys getting involved.”

7. Keep a journal

Memories get hazy after a few months, but you’ll need to provide an accurate narrative in order to convince a judge or jury that you deserve compensation. If you misrepresent the facts, your case could fall apart. That’s why you’ll need to keep a diary that details all of your dealings with your insurance company.

Start on the day you file your claim, even if you think a lawsuit is unlikely. Get a notebook and start logging conversations with names and dates. Be sure to write down any failings on your insurer’s part, but don’t exaggerate or embellish. You’ll do better in court if you stick to the hard facts.

“Write down all of your contacts,” says Mermelstein. “A timeline is very helpful.”

8. Be patient, lawsuits take time

Lawsuits often become waiting games. It easily can take a year or more to resolve a case. Attorneys sometimes use delaying tactics to throw their opponents off their game or build up their own hourly fees. Expect these kinds of legal maneuvers and don’t let them shake you.