Can You Sue Insurance for Denying Claim? A Realistic Guide to Your Rights

Finding out that your insurance company has denied a claim can feel like a punch to the gut. You’ve paid your premiums on time, played by the rules, and now, when you need them most, they’ve said “no.” It’s frustrating, confusing, and it can leave you wondering how you’re going to pay for a damaged roof, a car repair, or a crucial medical procedure.

In that moment of stress, one question naturally pops into your head: Can you sue insurance for denying claim?

The short answer is yes, you absolutely can. However, the longer, more realistic answer is that suing should be considered a last resort. It’s a path filled with legal procedures, time, and expense. Before you start drafting a lawsuit, it’s vital to understand why your claim was denied, what your policy actually says, and the steps you must take before a judge will even hear your case.

This guide is designed to walk you through everything you need to know. We’ll cover the common reasons for denials, the mandatory appeals process, the legal grounds for a lawsuit, and what the entire journey looks like. Think of this as your friendly, honest roadmap to navigating one of the most stressful situations a policyholder can face.

First, Don’t Panic: Understanding the Denial Letter

When you receive a denial, your first step isn’t to call a lawyer. Your first step is to read. Read the denial letter from your insurance company very carefully.

State laws require insurance companies to provide a clear explanation for why a claim is denied. This letter is the most important document you have right now. It will contain a specific reason for the denial, often referencing a particular clause or section of your insurance policy.

Common reasons for denial you might see include:

• The incident isn’t covered: This is the most common reason. For example, your standard homeowner’s policy likely covers water damage from a burst pipe, but not from a flood. Your auto policy covers collision damage, but not normal wear and tear on your tires.

• The policy lapsed: Your coverage may have expired because you missed a premium payment.

• You didn’t cooperate: Insurance policies require you to cooperate with their investigation. If you missed deadlines for providing documents or giving a statement, they might deny your claim.

• The damage is below your deductible: If the cost of the damage is less than your deductible, the insurance company won’t pay out.

• Suspected fraud: If the insurer believes you are being dishonest about the claim, they will deny it and may even refer the case to authorities.

Understanding this reason is the foundation of your next move. It tells you whether the denial is based on a factual misunderstanding, a disagreement over the policy’s interpretation, or a potential error by the claims adjuster.

A Quick Reality Check: Why You Shouldn’t Rush to Court

Before we dive into the legal deep end, let’s talk about why suing isn’t the ideal first step. Lawsuits are:

• Expensive: Attorney fees, court costs, and expert witness fees can add up quickly, often costing thousands of dollars.

• Time-Consuming: A lawsuit can take months or even years to resolve.

• Stressful: The legal process involves depositions, discovery, and strict deadlines, which can be a huge emotional drain.

• Uncertain: Even with a strong case, there’s no guarantee you’ll win. A jury’s decision can be unpredictable.

Think of a lawsuit as a powerful tool in your toolbox, but one you only use after you’ve tried the simpler tools first.

Step One: The Internal Appeal (Your First and Best Move)

Before you can even think about suing, you almost always have to exhaust your administrative remedies. This is a fancy legal term that simply means you must use the internal processes the insurance company provides to challenge the decision. This is called an internal appeal.

Think of the denial letter not as a final door slamming shut, but as a “pause” button. The insurance company is required to tell you how to start this appeal. The letter will include instructions, a deadline (usually 180 days for health insurance, but check your policy), and the address where you need to send your appeal.

How to File a Strong Internal Appeal

This isn’t just about saying “I disagree.” You need to build a compelling case. Here’s how to do it:

1. Get a Copy of Your Policy: If you don’t have it, request the full policy document. You need to read the exact language of the section the insurer used to deny your claim.

2. Review Your Policy with a Fine-Toothed Comb: Compare the reason for denial with the policy wording. Is there any ambiguity? Does your interpretation of the incident differ from theirs? Look for definitions of key terms.

3. Gather Supporting Evidence:

   • For health claims: Ask your doctor to write a letter explaining why a treatment is medically necessary. Get your medical records.

   • For property claims: Get a second opinion from an independent contractor on the repair cost and the cause of the damage. Take more photos and videos.

   • For auto claims: Get a second estimate from another repair shop.

4. Write a Persuasive Appeal Letter: This is your chance to tell your side of the story. Be clear, organized, and professional.

   • State your name, policy number, and claim number at the top.

   • Clearly state that you are appealing the denial of your claim.

   • Explain why you believe the denial was wrong. Reference specific parts of your policy.

   • Attach all your supporting documents and reference them in your letter (e.g., “Please see attached letter from my doctor, Dr. Smith, which confirms the medical necessity of the procedure…”).

   • Send it by certified mail with a return receipt requested. This proves the insurance company received it.

What Happens Next?

The insurance company will review your appeal. This process can take anywhere from 30 to 90 days, depending on the type of insurance and state laws. They will send you a final decision letter. If they uphold their denial, that letter is your ticket to the next step.

Important Note: For health insurance, the process is highly regulated. If your claim involves an urgent, life-threatening situation, you have the right to an “expedited” or “fast-track” appeal, which the insurance company must decide on within 72 hours.

Step Two: External Review (A Neutral Third Party)

If your internal appeal is denied, don’t lose hope. Most states offer a next step called an external review. This is where an independent third-party organization (not the insurance company) reviews your claim and the insurance company’s decision.

This is a huge advantage for you. The external reviewer is impartial and their decision is often binding on the insurance company, meaning they have to accept it.

How External Review Works

1. You Request It: After your internal appeal is denied, you have a limited time (usually four months) to request an external review. Your denial letter from the internal appeal should explain how to do this through your state’s insurance department.

2. The State Gets Involved: Your state’s Department of Insurance will assign your case to an independent review organization.

3. The Reviewer Makes a Decision: A team of independent doctors or other experts (depending on the claim type) will review your file, the policy, and the insurance company’s reasoning. They will make a final decision.

4. The Outcome: If the external reviewer rules in your favor, the insurance company is legally required to cover your claim. If they rule against you, your options become much more limited.

External review is most common in health insurance disputes, but many states have also extended this right to other types of insurance, like homeowner’s and auto. It’s a powerful, free tool that can resolve your problem without ever setting foot in a courtroom.

When Can You Sue? The Legal Grounds for a Lawsuit

If your internal appeal fails and external review isn’t an option, or if it fails, you may be considering a lawsuit. But you can’t just sue because you’re unhappy. You need a specific legal reason, known as a “cause of action.”

Here are the most common legal grounds for suing an insurance company over a denied claim:

1. Breach of Contract

This is the most straightforward reason to sue. An insurance policy is a legally binding contract. You agree to pay premiums, and the insurance company agrees to pay for covered losses.

If you can prove that your loss is covered under the plain language of your policy and the insurance company is refusing to pay, they have breached the contract. In this type of lawsuit, you are typically asking the court to order the insurance company to pay you the amount they owe you under the policy.

2. Bad Faith (Breach of the Covenant of Good Faith and Fair Dealing)

This is a more serious charge. Every insurance contract contains an implied promise that both parties will act in “good faith.” When an insurance company puts its own financial interests above yours and acts unreasonably in handling your claim, it may be acting in bad faith.

Proving bad faith is harder than proving a simple breach of contract. You need to show that the insurer’s conduct was unreasonable, reckless, or even malicious. Examples of bad faith can include:

• Failing to conduct a reasonable investigation: The adjuster makes a snap decision without looking at all the evidence.

• Unreasonably denying or delaying payment of a claim: The company uses stalling tactics in the hopes you’ll go away.

• Misrepresenting policy language: The claims agent lies to you about what your policy covers.

• Failing to provide a reasonable explanation for the denial: They simply say “no” without a proper reason.

• Lowballing the claim: The adjuster deliberately undervalues your loss.

If you win a bad faith lawsuit, you may be entitled to more than just the amount of your original claim. You might also be awarded:

• Consequential damages: For other financial losses you suffered because of the denial (e.g., if your house sat unrepaired and suffered more damage).

• Emotional distress damages: For the anxiety and stress caused by the insurer’s conduct.

• Punitive damages: Damages designed to punish the insurance company for particularly egregious behavior.

• Attorney’s fees: The court may order the insurance company to pay your legal bills.

3. Violations of State Consumer Protection Laws

Many states have specific laws, often called Unfair Claims Settlement Practices Acts, that regulate how insurance companies must handle claims. These laws define specific actions that are illegal, such as:

• Misrepresenting pertinent facts or policy provisions.

• Failing to acknowledge and act promptly upon communications.

• Failing to adopt and implement reasonable standards for the prompt investigation of claims.

• Refusing to pay claims without conducting a reasonable investigation.

If you can show that the insurance company violated one of these state laws, you may have an additional basis for a lawsuit and could be entitled to penalties and attorney’s fees.

The Lawsuit Process: A Step-by-Step Roadmap

If you’ve decided that suing is your only option, it’s helpful to understand what the journey looks like. Your attorney will guide you, but here’s a general overview.

Step 1: Hiring the Right Attorney

This is the most critical decision you’ll make. You don’t want a general practice lawyer; you need someone who specializes in insurance law. Look for an attorney with experience in “insurance litigation” or “bad faith” claims.

• Initial Consultation: Most insurance lawyers offer a free initial consultation. Use this time to ask questions about their experience, their success rate, and their fee structure.

• Contingency Fees: Most insurance lawyers work on a “contingency fee” basis. This means they only get paid if you win. Their fee is typically a percentage (often 33% to 40%) of the final settlement or court award. This arrangement makes legal help accessible even if you don’t have a lot of cash upfront.

• What to Bring: Bring your policy, all correspondence with the insurance company (including your denial letters), and any evidence you’ve gathered to the consultation.

Step 2: Filing the Complaint

Once you hire a lawyer, they will draft a legal document called a Complaint. This document outlines your side of the story, the legal grounds for your lawsuit (breach of contract, bad faith, etc.), and what you are asking the court to do (this is called the “prayer for relief”). The Complaint is filed with the court, and a copy (called a summons) is officially delivered to the insurance company.

Step 3: The Discovery Phase

This is often the longest and most labor-intensive part of a lawsuit. Discovery is the process where both sides gather information from each other. It can involve:

• Interrogatories: Written questions that the other side must answer in writing and under oath.

• Requests for Production: Asking for documents, such as the insurance company’s internal claims handling manual, the adjuster’s notes on your file, and email communications about your claim.

• Depositions: In-person, recorded interviews where lawyers from both sides ask questions to witnesses, including you, the claims adjuster, and any experts. This happens under oath, with a court reporter present.

This phase is where your attorney will try to uncover evidence of bad faith, such as notes showing the adjuster didn’t properly investigate your claim.

Step 4: Pre-Trial Motions and Settlement Negotiations

Before a trial ever happens, there will be a flurry of legal activity. Both sides may file motions asking the judge to rule on certain things. The most common is a motion for summary judgment, where one side asks the judge to rule in their favor without a trial, arguing there are no facts in dispute.

Throughout this entire process, from the moment you file the lawsuit right up until the jury returns a verdict, the door is open for settlement negotiations. Insurance companies are often motivated to settle cases to avoid the uncertainty and expense of a trial. Your attorney will negotiate on your behalf to try and reach a fair settlement.

Step 5: Trial

If no settlement is reached, your case will go to trial. This can be a bench trial (where a judge makes the decision) or a jury trial. Both sides will present their evidence, call witnesses, and make arguments. The judge or jury will then deliberate and render a verdict.

• If you win: The court will issue a judgment ordering the insurance company to pay you a certain amount of money. As discussed, this could include your policy benefits, plus additional damages.

• If you lose: You have the right to appeal the decision to a higher court, but this starts a whole new, expensive legal process.

Weighing the Pros and Cons: A Comparative Look

To help you visualize your options, here is a simple breakdown of the different paths you can take after a claim denial.

FAQ: Your Most Pressing Questions Answered

Let’s tackle some of the most common questions people have when they’re considering this difficult step.

Q: How much does it cost to sue an insurance company?

A: The out-of-pocket costs can vary. If you hire a lawyer on contingency, you won’t pay hourly fees, but you may be responsible for “court costs” like filing fees and payments for expert witnesses. These can range from a few hundred to several thousand dollars. Your attorney should explain this clearly at the start.

Q: How long do I have to sue? (The Statute of Limitations)

A: This is a critical question with a strict deadline. The statute of limitations is the time limit you have to file a lawsuit. It varies by state and by the type of claim (e.g., breach of contract vs. bad faith). It can be as short as one year or as long as six years. You must file your lawsuit within this window, or you will lose your right to sue forever. Your denial letter may not mention this, so it’s vital to consult with an attorney as soon as possible.

Q: Can I sue for emotional distress?

A: Yes, but usually only as part of a bad faith claim. If you are just suing for the money they owe you under the policy (breach of contract), you generally cannot get damages for emotional distress. However, if you can prove the insurance company acted in bad faith, you can often include a claim for the emotional anguish their conduct caused you.

Q: What if my insurance company goes out of business?

A: This is rare, but it happens. If your insurer becomes insolvent, your claim would likely be handled by your state’s guaranty association. These are safety-net organizations that pay the claims of insolvent insurance companies, up to a certain limit. Your state’s Department of Insurance can provide more information on this process.

Q: Should I talk to the insurance company’s lawyer?

A: No. If you have filed a lawsuit or even if you’ve just hired an attorney, do not speak directly to the insurance company or their lawyer. Anything you say can be used against you. Always refer them to your attorney.

Q: Is it worth suing for a small amount?

A: Probably not. The time, stress, and potential legal costs of a lawsuit almost always outweigh the benefits of a small claim. For a claim of a few thousand dollars, your energy is better spent on a well-documented internal appeal or seeking help from your state’s insurance department.

Conclusion

Finding out that your insurance claim has been denied is a major setback, but it doesn’t have to be the end of the road. While the question “can you sue insurance for denying claim?” has a clear answer—yes, you can—the smarter path is to see a lawsuit as a powerful tool reserved for the most serious situations.

Your journey should begin with understanding why your claim was denied, followed by a strong internal appeal. If that fails, explore a free external review through your state. Only after you have exhausted these options, and if a significant amount of money or a matter of principle is at stake, should you consider stepping into the courtroom.

Navigating a denied claim can feel overwhelming, but by taking it step-by-step, arming yourself with knowledge, and seeking the right help when you need it, you can stand up for your rights and fight for the coverage you paid for.

Additional Resource

For more information on your rights as a policyholder, a great place to start is the website for your state’s Department of Insurance. You can find a directory and links to all state insurance departments here:
National Association of Insurance Commissioners (NAIC) – States & Jurisdictions Map