Three Examples of How Auto Insurance Companies Can Fail Their Policyholders

Friday, January 4, 2019, 6:00 AM | Leave Comment

Choosing the right auto insurance company is a big deal. Your auto insurance policy should protect you, not hurt you.

Unfortunately, there have been far too many instances where policyholders have been let down by the companies they hand selected to protect them.

The following stories of caution should help prevent you from making similar mistakes.

By understanding the issues that others have had to face, you can better position yourself to make smarter decisions.

  1. Outrageous Claim Denials

    The story of Ethel Adams is one of the most infamous cases of how sneaky auto insurance companies can be. Adams was in a horrendous car accident following a chase between a couple in a dispute. One man chased his girlfriend and rammed her into the center line, where her car flipped and crushed Adams’ vehicle.

    After her horrible accident, she remained in a coma for nine days while her medical bills stacked up. When she awoke, she found that was confined in a wheelchair. Despite her excruciating pain, like most policyholders, one of the first things she did was reach out to her car insurance company, State Farm, to file a claim.

    Surprisingly, they denied her claim because they stated that since she was hit by another driving chasing someone else, the accident was intentional, and therefore not accidental. State Farm took the stance that they should not get involved since the situation was more of a crime.

    In a statement, the company said, “It’s also not unexpected or unforeseen that if you are ramming a car from behind with the intent of pushing it into oncoming traffic, you’re going to hit some people,” Dinning said in an interview. “That’s what [Testa] did. Liability insurance is only for accidents, and this wasn’t an accident.”

    According to Schwartzapfel, a team of New York lawyers, it’s not uncommon for auto insurance companies to offer outrageous reasons for claim denials. “Whenever you’re in a situation—like an auto accident—where you feel as though you’re being treated unfairly and without justice, you should seek legal representation.”

    The press became outraged by the case. And Ethels did work with a legal team to get the situation sorted out. The Insurance Commissioner got involved, and threatened to revoke State Farm’s license if they couldn’t come up with a fair solution within three days. In the end, they passed “Ethel’s Law,” which made it clear what “accident” meant, and favored people who were in similar situations.

  2. The Fine Print Illusion

    Fine print is found in nearly everything you do today. No matter what auto insurance company you choose, you’ll have to navigate the fine print. Of course, some policies are much sneakier than others, but the fact remains: you could be risking your coverage if you don’t take time to comb through the documents before you sign off.

    Studies have shown that fewer than 1 in 1,000 people actually read the fine print. Not only is it time consuming, but the verbiage can be very confusing. The truth is, you never know what’s lurking in the small print.

    Here are some popular “shady” tactics that auto insurance companies have used in the past:

    • Using “yo-yo financing” tactics to take advantage of the ability to evaluate criteria (like your credit score) and change the terms of the agreements, often in their favor.

    • Using specific deadlines and procedures for filing claims (for example, if you didn’t report a minor accident within the specified timeline, you could lose out.)

    • Certain incentives that you might think are standard, are not included in your insurance policy, such as roadside assistance.

  3. Shady Loan Stipulations

    Wells Fargo is a perfect example of how fine print can fiscally hurt you. As if Wells Fargo didn’t have enough bad press, the company revealed that it had stolen roughly $80 million from 570,000 customers. That was shortly after Wells Fargo admitted that they’d created millions of fake accounts to meet sales goals. This particular scandal revolved around the bank’s loan contracts, which required customers to maintain auto insurance and permit the bank to purchase auto insurance on their behalf if it detected that they did not have policies of their own.

    However, the system for ensuring the customer did not have a auto policy wasn’t very good, and many people were paying for two types of auto insurance. Some people even had their cars repossessed over not paying for a phantom insurance.

    “We take full responsibility for our failure to appropriately manage the [auto insurance] program and are extremely sorry for any harm this caused our customers, who expect and deserve better from us,” head of Wells Fargo consumer lending, Franklin Codel, said in a statement. “Upon our discovery, we acted swiftly to discontinue the program and immediately develop a plan to make impacted customers whole.”

The caution tale here is to always be aware of your fine print, check your credit reports often, and your bank statements more frequently, in an effort to recognize any discrepancies that might be present.

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