How Do Insurance Premiums Change After a Lawsuit?
An insurance premium is a price based on risk, and a lawsuit is a significant indicator of increased risk. As such, an insurance premium will almost always change after a lawsuit, and the change can be both immediate and long-lasting. The premium increase is not a punishment but a reassessment of the insured’s risk profile based on their claims history. Understanding how premiums change after a lawsuit is an important part of managing your insurance costs.
The most immediate change is a premium increase at the time of your policy renewal. When an insurance company pays out a settlement or a judgment on your behalf, they will view you as a higher-risk client. They will see that your risk of being sued is higher, and they will raise your premium to account for that increased risk. The amount of the increase will depend on the type of claim, the amount of the payout, and your overall claims history. A small claim may result in a minimal premium increase, while a large, multi-million dollar lawsuit could result in a massive premium hike or even a cancellation of your policy.
The second and often more significant change is that your claims history becomes part of a national database. When you apply for a new insurance policy, the new insurer will review your claims history to determine your risk profile. A lawsuit will be a red flag, and the new insurer may charge you a higher premium or may refuse to issue a policy at all. This can make it difficult to find affordable insurance for years after a lawsuit.
It is important to understand that a premium can also change even if the lawsuit is dismissed. An insurance company will often incur significant legal defense costs to defend a lawsuit, even if it is baseless. While the company will not pay a settlement, it may still view the insured as a higher risk because they had to incur the costs of defending them. As a result, the premium may still increase, even if the insured is not found liable.
The best way to mitigate the impact of a lawsuit on your premiums is to be proactive about risk management. By implementing a strong safety program, maintaining your property, and addressing potential risks, you can reduce the likelihood of a lawsuit in the first place. You should also consider a higher deductible, which can help to reduce the number of small claims you file and keep your premiums lower over the long term. While a lawsuit will almost always result in a premium increase, being a proactive and safe client can help to minimize the financial impact on your insurance costs.