This post comes from Susan Ladika at partner site Insurance.com.
You’ve been involved in an auto accident, and totally out of the blue, you find yourself being sued over the wreck.
Once you get over your initial shock, you don’t need to start a frantic search for a defense attorney. Instead, you should immediately pick up the phone and call your car insurance company.
Your insurer will have its own list of attorneys it calls on in times like this, and your insurance company will cover the costs of your defense.
But time is of the essence.
“We want to have enough time to assign it to a defense attorney,” says Bruce Rockwell, vice president of claims at Mercury Insurance. Depending on where you live, your insurance company usually has 20 to 30 days to answer the lawsuit, or you could be found in default.
During the window it has in which to respond, your insurer wants to have adequate time to review the case and answer it appropriately, Rockwell says.
Initially, your insurance company will investigate the allegations of liability that are brought against you, as well as the damages the plaintiff claims, says John Kinney, chief claims officer at The Hartford.
“Your company has an obligation to protect your interests and will attempt to amicably resolve claims made against you as afforded by the terms of your policy,” Kinney says.
Few cases reach the courtroom
One of your auto insurance company’s goals is to wrap up the case as soon as possible, Rockwell says. A trained mediator may be called in to try to help reach a settlement.
But if no agreement is reached, you could be questioned in a deposition. “It gets very uncomfortable,” Rockwell says. To prepare you for questioning, your defense attorney will coach you on “how to handle yourself on very heated questions.”
While the vast majority of cases ultimately settle outside the courtroom, about 1 to 2 percent actually go to trial, he says. Those cases typically involve accidents with very serious injuries.
In the other cases that may go to court, the plaintiff “alleges injuries that didn’t occur in the accident,” Rockwell says. “They try to allege something happened in the accident, when it didn’t.”
And those false allegations are something that companies such as Mercury will fight. “We don’t want to be a target,” Rockwell says. “Once an insurance company starts paying that, it’s like a slot machine.”
You’re still on the hook
If your case does wind up going to trial, your insurance company will most likely want you to attend. “The jury wants to see people,” and see that they care, he says.
“In the event the lawsuit results in a judgment, your insurance company will pay for the covered claims against you, up to your policy limits,” Kinney says.
Usually the plaintiff will accept payment up to your policy limits, Rockwell says, but that isn’t always the case.
That’s why it’s crucial to have an adequate amount of auto insurance coverage in place. (See typical coverage for homeowners in your state in the “What Drivers Like You Buy” tool.)
Each state has minimum liability limits, but, generally, “that really doesn’t cover much,” Rockwell says. If you’re a young person working a minimum-wage job who doesn’t have any assets and doesn’t own a home, “the minimum limits are probably fine. You can’t squeeze blood from a turnip. There’s nothing there.”
But if you have assets and you’re ordered to pay an amount greater than your policy limits, “the insured is personally exposed,” he says, which means you’d have to pay the difference between your policy limits and the court judgment out of your own pocket.
Got assets? Try an umbrella policy
One option is to purchase an umbrella insurance policy, along with your auto insurance policy, which will provide you with a higher amount of coverage, Kinney says.
For example, “if you’re involved in a lawsuit in which your primary auto bodily injury policy limit is insufficient to pay the damages sought by an injured person, you could end up having to pay the excess amount. The additional policy limits available under a personal umbrella policy may fully protect you in that instance,” Kinney says.
Costs for umbrella policies vary by state and risk factors, but are typically $200 to $400 a year for the first $1 million in coverage, then $75 to $100 a year for the next $1 million. Your insurance company may require you to buy a certain amount of primary auto or homeowners insurance before you can purchase an umbrella policy.
Even if you’ve been sued after an accident, there’s a good chance you’ll be able retain your car insurance coverage, Rockwell says.
But if you have a stack of other moving violations, or you were involved in a wreck while you were driving under the influence, it could be a different story. “It just depends on your driving record,” he says.
You’ll probably lose your good driver discount at a minimum, says Des Toups, Insurance.com managing editor, or face an accident-related surcharge at renewal time. “Thresholds vary by company and by state, but it’s unlikely a wreck serious enough to trigger a lawsuit would leave your car insurance rates unscathed,” he says.
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