Will the Insurance Company Pay When Your Car is Stolen? Guess Again.

"My car was stolen and the insurance company won't pay me." This is a phone call I get too often – considering I do not advertise that I handle insurance claim denials. People only call me because they heard I handle "car cases." Close enough.

This area of the law disturbs me far more than the lemon law . I understand that a defective car gets made every now and then. But when your car gets stolen and you had insurance coverage for that, well – you expect the claim to be paid. That seems reasonable to me.

The vast majority of the calls I get on this are from minorities or from people who live in "bad" parts of town. You know, where cars are more likely to be stolen. Except that's not how most insurance companies view it. The insurance companies figure that you are more likely to have staged your theft to scam them if you are 1) poor, 2) a minority, or 3) live in a bad part of town.

So if 1, 2, or 3 describe you, bear in mind that the insurance you are paying good money for right now might be an illusion. The first case I ever handled on one of these was on behalf of an older woman who lived in one of the poorest neighborhoods of Detroit. Her station wagon had been stolen from in front of her house and recovered a few miles away, burned to a crisp in an alley. An insurance investigator combed through the ashes and decided that the car had been inoperable and rather than pay to have the engine fixed, my client had put the car in the alley, lit it on fire and walked home. My client was 67. They also theorized that – since they said the car did not run – she had pushed the car there. Her husband was an invalid. You do the math. We sued and after some ugly litigation, they paid her.

Another client's car was stolen near Mt. Clemens, north of Detroit, and recovered a few miles away, missing its license plate, battery, radio, steering wheel (presumably for the airbag), spare, and all four wheels. That case went to trial. The only witness for the insurance company was their investigator who testified that he had recommended the claim be denied because "nothing of value" was taken from the car. On cross examination I asked him, "The license plate was missing?" Yes. "The battery was missing?" Yes. And so on down the list. At the end of the list I asked again, "And it's your testimony that 'Nothing of value' was missing from the car?" To which he answered Yes.

The judge actually stopped us – held up his hands at the witness and me like a traffic cop – and asked the attorney for the insurance company, "Is this all you have?" This was a bench trial and the judge was going to be the one picking a winner. When they told him it was he said we could make closing arguments if we wanted to but they weren't necessary. He ruled in our favor.

In another case, an insurance expert witness testified that Corvettes "are impossible to steal." He had a lot of faith in the transponder key system and spent his entire direct talking about how they made cars "impossible to steal." On cross I asked him, among other things, "Couldn't I just bring a flatbed tow truck up behind the car, grab it and haul it away?" He said that was also impossible since someone would see me doing it.

Every attorney I know who handles these claims has seen the same thing I have: Insurance companies deny more claims made by minorities, the poor, and those who live in bad neighborhoods. Why? Michigan (like many states) has no "bad faith" law. If you sue the insurance company and win, they pay you the same amount of money, at best, that they would have paid you originally. They have nothing to lose by denying the claim. And if a person doesn't sue, then they come out ahead. In other words, it is in their best interest to deny claims if the odds are that some of those denied won't sue.

Why do they overwhelmingly deny claims of minorities and the poor? Because they are the least likely to be able to afford an attorney. And very few attorneys handle these cases. As we have discussed before, Michigan follows the American Rule in insurance cases – the litigants bear their own legal costs. The insured has to pay an attorney to fight one of these cases, usually out of the proceeds. So, your claim is denied. You sue and win. You get two-thirds of the recovery (after deduction of the costs of the action) and the attorney gets his/her one-third. You call that winning? You just lost a huge slice of the money you were entitled to.

My advice? If you suffer a loss try not to be poor, a minority or living in a bad part of town. If that's not something you can control, then I suggest avoiding insurance companies that price advertise. "We cost less!" Who cares? A better question is: Do you pay claims? Buy from companies with a better record of paying claims, even if they cost a little more. After all, if they aren't going to pay your claim, their "coverage" is worthless even if Anthony saved you enough money to buy a new purse.

Photo "Car Wreck" by Petr Kratochvil.

Steve Lehto has been practicing consumer protection and lemon law for 23 years in Michigan. He taught Consumer Protection at the University of Detroit Mercy School of Law for ten years and wrote The Lemon Law Bible. He also wrote Chrysler's Turbine Car: The Rise and Fall of Detroit's Coolest Creation and The Great American Jet Pack: The Quest for the Ultimate Individual Lift Device. Follow him on Twitter if you liked this post. Twitter: @stevelehto