Isn't it true that an insurer may refuse coverage on a particular claim and if so, how often does this happen?

It happens all the time. People who believe that they are insured against a certain claim are always surprised when their insurance company points out their ominous fine print exclusion. For example, one client was sued for $500,000 resulting from his teenage daughter’s car accident. He assumed that his auto insurance policy would cover the accident until his insurance agent notified him that his policy didn’t cover his daughter because she had moved out of his house to attend college. He paid over $150,000 to settle. You too have endless ways to get into trouble, and your insurance won’t always come to your rescue. We repeat: Buy insurance but don’t rely upon it.

If you are sued and you have liability insurance, keep your insurer on the hook. Your insurer must defend you in good faith or you can sue them for any judgment against you above your coverage. Your insurer can have liability for excessive awards unless it notifies you of the excess claim and settles or attempts to settle the claim in good faith within the policy limits. Your insurer can’t refuse a reasonable settlement which exposes you to liability above your insurance. Insurance companies decline claims coverage, but if you question your coverage, demand that your insurance company defend and indemnify you. Your insurer may then defend the claim and reserve the right not to pay any award, or your insurer may litigate its liability under your policy. If you have potential exposure beyond your insurance coverage, hire your own attorney to protect you against an excessive award.

A similar problem with liability insurance is that you lose control over your case. Your insurance company decides whether to settle, and for how much. Perhaps this is unimportant with an automobile accident, but it can be enormously important to you if the lawsuit involves your professional competence or impacts upon your personal reputation.

For example, a doctor may be convinced that he is in the right and wants his day in court. However, his insurance company may consider it cheaper to settle. Or you may want to quickly settle your case to avoid adverse publicity while your insurer insists that your case goes to trial. You and your insurer can have different agendas. If you force your insurance company to resolve your case as you want, you can forfeit the insurance protection for which you paid hefty premiums. And once you are sued, your premiums will rise. With multiple lawsuits over your lifetime – win or lose – your insurance premiums will increase. One physician relied on her malpractice insurance for years until her insurance company defended her on four lawsuits. They hiked her premiums to $250,000 a year. She pays more for her insurance than she would likely pay on any one lawsuit. This isn’t unusual.