Denying third party claims Lawyer Manual

The insurance company may deny a third party’s claim for various reasons: e.g., the insured wasn’t at fault, or the third party is seeking recovery for damages that don’t appear to have been caused by the accident or is seeking excessive damages. If the insurance company refuses to pay a claim made by a third party, but the third party still wants to get paid, the third party’s recourse is to sue in tort. Sometimes, pro se plaintiffs end up naming the insurance company as the defendant. That is improper. The proper defendant would be the alleged at-fault party or parties. Then, when that insured gets the summons, he passes it along to his insurance company so they can defend and pay out any damages that may be awarded. The insurance company owes its insured, or the defendant in the suit, a duty to defend in court, so long as the insured has met his contractual obligations under the policy.  

Although there can be a host of reasons coverage can be disputed by the insurance company, there are two scenarios where the insurance company will have a reasonable basis to deny a claim:

• The insurance company denies the claim for failure to notify it, or
• The insurance company denies the claim for non-payment of premium.  

The insured has an absolute duty to notify the insurance company of any incident that could lead to a claim. The insured then must cooperate with the insurance company in its investigation of the claim. Many cases have held that notice requirements “serve the important function of allowing the insurer the opportunity to make a timely and thorough investigation of the insured’s claim,” so that such provisions are “prerequisites to coverage and not mere technical requirements which the insured is free to overlook or ignore with impunity.” Kerr v. Illinois Central R.R., 283 Ill.App.3d 574, 670 N.E.2d 759, 765, 219 Ill.Dec. 81 (1st Dist. 1996), appeal denied 171 Ill.2d 567 (1997), citing American States Insurance Co. v. National Cycle, Inc., 260 Ill.App.3d 299, 631 N.E.2d 1292, 1300, 197 Ill.Dec. 833 (1st Dist. 1994).