The Legal Implications of Car Insurance
By Leo Chu
Car insurance policies at their most pure sense are also legal agreements. They are agreements which are bound to the laws of the countries that they are applicable to. The government in a way can regulate the car insurance business through rates controlling tools. This fact makes it clear that car insurance policies have great legal implications. These implications can be seen in the inevitable involvement of legal entities in finding a way to negotiate the way the insurance policy would apply. From the filing of the application for the insurance policy up to the stating of claim legal requirements are always present. Sadly, there is a problem in the legality of insurance policies in general.
Understanding the legal terms used to depict the situation of the insurance policy is a big step in finally grasping the legal essence of insurance. There are certain terms like reservation of rights letter, bad faith lawsuit, and financially responsibility that creates a jargon filled aspect of car insurance. The simple goal of car insurance policies is to create a safety fund that insured individuals can opt to use at times that finances are tight because of a car accident or other related incidents. The simplicity of car insurance makes policy holders and policy shoppers negligent in trying to understand the said legal terms.
The reservation of rights letter simply means a notification from the car insurance company that the costs of the damages incurred are not covered by the insurance policy. There are multiple ways and possibilities of car damage and human injury. The policy holders can have many different forms of damages in just one accident. In the insurance agreement, insurance policies are sometimes specified for only certain types of damages. In situations where the policy holder will claim for compensation for an uncovered damage, the insurance company will give this type of letter. This letter informs the insured that the damages incurred are not covered and therefore out of the rightful claim of the policy holder.
Financial responsibility is on both sides- insurer and insured. The financial responsibility of the insurer is to assure that funds are available in times that the insured individual needs it. On the other hand, the payments and premiums are the financial responsibility of the insured. Any failure in any of the two is enough to justify a lawsuit or worse the cancellation of the car insurance policy. At some cases a bad faith lawsuit is filed because of the breach of the contract signed by the insurer and the insured person. Bad faith lawsuit implies that the breach has reduced the welfare of either end, in these situations irreparable damages would usually end up to the nullifying of the whole insurance policy.
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