I am often asked by clients whether they should file on their own auto insurance policy after a car accident. They hesitate to do so because of the fear that they may be cancelled or face a rate increase. At the same time, however, they realize that they are not getting the quality of service from the other driver’s insurance company. There is a reason for that.
Even though auto liability insurance is mandatory in most states, there is a common misconception that the other driver’s liability insurance company is required to cover your losses and to act in good faith. Nothing can be farther from the truth. When you buy liability insurance, you are buying protection for yourself in the event you do something wrong. This means is if you do something that might render you legally liable to someone else, then your insurance policy will provide you with a legal defense against the claim and even pay any final judgment rendered against you.
Let’s say you were involved in a car accident that you believe was not your fault. Let’s go even further and say that the police report is in your favor. When you deal with the other driver’s insurance, you are making a “third-party claim.” It’s called a third-party claim because you are legally viewed as an outsider or stranger to the insurance policy between the driver and his insurance company. As such, the other driver’s insurance company only has a duty to protect the other driver from your claim. They have absolutely no duty to protect you or treat you fairly. They have no duty to repair your car, arrange a rental vehicle, pay your medical expenses, or even return your telephone calls. Their only legal duty is to protect their driver from any potential legal liability to you.
However, since the other insurance company has a duty to protect the at-fault driver, they usually choose to conduct a preliminary investigation which includes reviewing the police report, talking to the drivers and any eye-witnesses, and inspecting the vehicles. If the insurance company believes that the accident was their driver’s fault, then they may be willing to pay your damages in order to protect their driver against any future legal claim by you. But understand that the insurance company’s decision to fix your car or pay for your damages is not because of any legal duty to you. Rather, this decision is strictly voluntary in order to protect their driver against a future lawsuit. And in the event a lawsuit does arise, the insurance company will hire an attorney to defend the other driver against your case.
On the other hand, when you have your own insurance, there is a contractual relationship between your and your insurance company. Because of this relationship, the law imposes certain duties and obligations upon the company to handle your claim promptly, fairly and in good faith. This is called a “first-party claim.” It is called a first-party claim because the person who is actually insured under the policy is the one making the claim. These duties do not exist when you are dealing with the other driver’s insurance company in a third-party claim. Likewise, it is usually more beneficial for you to file your claim with your own insurance company. They will act more promptly in getting your car inspected, repaired and arranging a rental vehicle.
As a matter of fact, you have a contractual duty to promptly report any claims to your insurance company or else you could waive your insurance coverage. Then, when you really need your coverage to come though for you, it might be there because you chose to deal with the other insurance company instead.
Even if your insurance company pays on your claim, they will not necessarily be out the money. They will subrogate and seek reimbursement from the other driver’s insurance company. In the event they get reimbursed, then they will also refund your deductible.
As far as you being cancelled or your rates going up, I can tell you this: You will not likely get punished if you are the innocent party in the claim. Most (if not all) reputable insurance companies do not punish their insureds when they make a claim for benefits from an accident that wasn’t their fault. In my years of practice as a car accident attorney, I have never known of a client that was cancelled or faced a rate increase just because they made a claim on their own policy. You buy insurance for your protection and convenience. That’s why you pay your premiums. Likewise, no one can blame you for using your policy when you need it most.