Insurance Claims and Negotiations Flashcards

When is it appropriate to reject an insurance settlement and file a lawsuit?

Answer: When negotiation fails to produce fair compensation and litigation costs are justified

Filing suit is appropriate when settlement negotiations stall and the expected trial recovery justifies the cost and time of litigation.

What is a 'release of liability' in a settlement agreement?

Answer: A legal document in which you waive all future claims related to the accident in exchange for payment

Signing a release permanently ends your legal right to seek additional compensation for the accident regardless of future developments.

What is the purpose of a 'reservation of rights' letter from an insurer?

Answer: It notifies you that the insurer is investigating whether coverage applies while reserving the right to deny

A reservation of rights letter allows the insurer to handle a claim while preserving its right to later deny coverage based on policy exclusions.

How does 'gap insurance' benefit an accident victim whose vehicle is totaled?

Answer: It pays the difference between the vehicle's actual cash value and the remaining loan balance

Gap insurance prevents a victim from owing money on a totaled vehicle that is worth less than the outstanding loan balance.

What is the 'actual cash value' (ACV) of a vehicle in an insurance claim?

Answer: The replacement cost minus depreciation at the time of the accident

ACV reflects the fair market value of the vehicle at the time of loss, accounting for age, mileage, and depreciation.

What is 'diminished value' in an auto accident claim?

Answer: The decrease in a vehicle's resale value after an accident even when fully repaired

A repaired vehicle is worth less than a comparable vehicle with no accident history, and that difference can be claimed as diminished value.