Why Do Insurance Companies Deny Claims? (And Why It Matters Whose Insurer Denied Yours)

Why insurance companies deny claims depends almost entirely on what kind of claim it is. A health insurer denying an MRI, a homeowners carrier denying smoke damage, and a liability adjuster denying your injury claim after a car accident are three different problems with three different fixes. The underlying incentive is the same everywhere, since paying claims is the industry’s single biggest expense. But the reasons stated in the denial letter, your odds on appeal, and what you can legally do next all vary by claim type. 

One distinction matters: whether the company that denied you is your own insurer or someone else’s. Your own insurance company owes you duties under California law that the at-fault driver’s insurance company does not. That difference decides nearly everything below.

Key Takeaways

• Insurance claims get denied for a handful of recurring reasons across all types: policy exclusions, documentation gaps, missed deadlines, coverage disputes, and alleged misrepresentation.
• Denied claims can be challenged. Health plans must offer an internal appeal, and every state gives you a complaint path through its insurance regulator.
• California insurers must acknowledge your claim within 15 calendar days and accept or deny it within 40 days of receiving proof of the claim, in writing, with the reasons stated.
• If your own insurer wrongfully denies your claim, California law lets you sue for bad faith, with damages that can go well beyond the policy. If the at-fault driver’s insurer denies your injury claim, that option mostly doesn’t exist. Your remedy is a lawsuit against the driver.
• Personal injury lawsuits in California must be filed within two years of the injury. Ongoing negotiations with an insurer do not pause that clock.

Claim Denials at a Glance

Claim type	Most common denial reasons	Your main path after denial
Health insurance	Coding and paperwork errors, prior authorization, medical necessity	Internal appeal, then Independent Medical Review (free in California)
Homeowners / Property	Exclusions (flood, wear and tear), late notice, misrepresentation	Written appeal, Department of Insurance complaint, bad faith suit
Your own auto coverage (UM/UIM, MedPay, collision)	Coverage disputes, documentation, alleged misrepresentation	Written appeal citing claims regulations, CDI complaint, bad faith suit
At-fault driver’s insurer (injury claim)	Fault disputes, causation disputes, coverage problems	Demand letter, then lawsuit against the driver within two years

Why Insurance Companies Deny Claims

Insurance companies are risk businesses. They collect premiums, invest the float, and pay out on the fraction of policies that turn into claims. In 2024, U.S. property and casualty insurers paid roughly $631.7 billion in losses and loss adjustment expenses, nearly triple everything else they spent on underwriting combined. Claims are the cost center. Every denied claim, and every claim paid at a lower number, lands directly on that line.

None of that makes any individual denial wrongful. Plenty of denials are correct. Someone files a flood claim on a homeowners policy that excludes flooding, and the exclusion applies. But the incentive structure explains why claims get examined the way they do, and why the reasons below come up over and over, across health, home, and auto insurance alike:

• Policy exclusions. The loss falls outside what the policy covers.
• Documentation problems. Missing records, incomplete forms, unanswered requests for information.
• Missed deadlines. Late notice of the claim, or late filing of required proof.
• Coverage disputes. The policy lapsed, the person involved wasn’t covered, or the limits were already exhausted.
• Alleged misrepresentation. The insurer claims you gave inaccurate information on your application or your claim.

That’s the pattern everywhere. What changes by insurance type is how often denials happen, how winnable an appeal is, and what leverage you hold.

Health and Homeowners Denials

Health insurance

Health insurance is the one area with real denial data. Analysis of federal marketplace plans found insurers denied 19% of in-network claims in 2024, and the reasons were mostly administrative: coding issues, prior authorization, eligibility questions. The same analysis found that fewer than 1% of denied claims were ever appealed.

That last number surprisingly low, since appeals work more often than people assume. In California, if your health plan denies a treatment and the internal appeal fails, you can request an Independent Medical Review through the Department of Managed Health Care, which is free. In about 73% of IMR cases, the patient ends up getting the denied service, either because the plan reverses itself or the independent reviewers overturn the denial. Most California health plans fall under the DMHC; a smaller set of health insurance policies are regulated by the Department of Insurance instead, which runs its own review process. Your denial letter should say which applies.

Homeowners insurance

Homeowners denials usually come down to exclusions (flood and earth movement being the classics), wear-and-tear arguments, late notice, or misrepresentation claims. California is watching this closely right now. After the January 2025 Palisades and Eaton fires, the Insurance Commissioner took legal action against the California FAIR Plan over improperly denied smoke damage claims, after the Department received more than 220 smoke-related complaints and recovered over $74 million for wildfire survivors through complaint intervention. If a property denial looks thin, the state’s complaint process has teeth.

Why Injury Claims Get Denied After a Car Accident

Injury claims are different from a denied MRI or a disputed roof. The money is bigger, the facts are messier, and the insurer paying you is usually a company you never chose: the at-fault driver’s liability carrier. Here’s what denial actually looks like in that world.

1. Fault disputes

California follows pure comparative negligence, a rule the state Supreme Court adopted in Li v. Yellow Cab Co. back in 1975. You can recover damages even if you were mostly at fault; your recovery just shrinks by your percentage of blame. Insurers know this, so a “fault dispute” is rarely a clean denial. More often it’s a value reduction dressed as one: the adjuster assigns you 40% of the blame and offers 60% of what the claim is worth. If you’ve been told you were partially at fault, that’s a negotiation position, not a verdict.

2. Causation disputes

The adjuster agrees their driver caused the crash but argues the crash didn’t cause your injury. Pre-existing conditions get blamed. Gaps in treatment get treated as proof you weren’t really hurt. Symptoms that showed up days later get questioned, even though delayed onset is common in soft tissue and head injuries. Medical records, consistent treatment, and a doctor willing to connect the injury to the crash in writing are what beat this argument.

3. Coverage problems

Sometimes the denial has nothing to do with you. The driver who hit you let the policy lapse. They were an excluded driver on someone else’s policy. Or the policy limits are real but small; plenty of California drivers still carry minimum coverage, and a serious injury exhausts those limits fast. When the at-fault driver has no usable coverage, your own uninsured motorist coverage may be the claim that matters, and being hit by an uninsured driver triggers a completely different process.

4. Misrepresentation and cooperation allegations

Recorded statements exist for a reason. An offhand “I’m feeling better” or an inconsistent detail between your statement and the police report can become the stated basis for a denial. Insurers can also deny for failure to cooperate if you don’t respond to information requests, though what counts as reasonable cooperation is narrower than adjusters imply.

5. Missed deadlines

The one that ends cases. California gives you two years from the date of injury to file a personal injury lawsuit under Code of Civil Procedure section 335.1. Negotiating with an insurer does not pause it. Adjusters know the date. A claim that drags past it is worth zero, no matter how strong it was the day before.

One thing you won’t find in this list: a statistic on how often auto injury claims get denied. No reliable one exists. The denial rates that circulate online, including that one-in-five figure, are health insurance numbers pulled from ACA marketplace data. They say nothing about auto liability claims, and any article applying them there is guessing.

Whose Insurer Denied You? That Changes Everything

Two people can receive nearly identical denial letters after the same crash and have completely different legal options. The difference is the contract.

When your own insurer denies (first-party claims)

Uninsured motorist, underinsured motorist, MedPay, collision, your homeowners policy. These are first-party claims: you have a contract with the company, you paid for the coverage, and California reads a promise into every insurance policy called the implied covenant of good faith and fair dealing. When an insurer breaches that promise by denying or delaying a claim unreasonably, California treats the breach as a tort in its own right, separate from the contract. The California Supreme Court laid this out in Egan v. Mutual of Omaha, which also held that insurers have a duty to actually investigate before denying.

A bad faith case can recover: 

• policy benefits
• emotional distress damages
• consequential financial losses
• and in cases involving oppression, fraud, or malice, punitive damages. 

That exposure is why first-party denials, pressed properly, get second looks.

California also gives you procedural leverage. Under the state’s Fair Claims Settlement Practices Regulations, an insurer must acknowledge your claim within 15 calendar days, decide it within 40 calendar days of receiving proof, respond to your communications within 15 days, and put any denial in writing with the factual and legal basis for it. If more time is genuinely needed, the insurer has to tell you in writing and keep updating you every 30 days. Documented violations of these rules become evidence in a bad faith case.

When the other driver’s insurer denies (third-party claims)

You have no contract with the at-fault driver’s insurance company. Its good faith duties run to its own policyholder, the person who hit you, not to you. And since the California Supreme Court’s 1988 decision in Moradi-Shalal v. Fireman’s Fund, injured claimants cannot sue the other side’s insurer for unfair claims practices. There is no third-party bad faith lawsuit, no matter how unreasonable the denial feels.

A lot of what’s written online about “suing the insurance company” quietly assumes a first-party claim. Read it against your situation carefully.

So where does that leave you? With the lawsuit against the driver. A third-party denial means the insurer has declined to settle voluntarily, and resolving exactly that dispute is what litigation exists for. Filing suit changes the math for the insurer too. If it refuses a reasonable settlement within policy limits and a jury later awards more, the insurer can end up owing its own policyholder for the excess, and that policyholder can assign the claim to you. The mechanics get technical, but the practical point is simple: a liability insurer that stonewalls a strong claim is taking a risk it has to price.

	Your own insurer (first-party)	At-fault driver’s insurer (third-party)
Contract with you	Yes, you’re the policyholder	No
Duty of good faith owed to you	Yes	No, it runs to their policyholder
Bad faith lawsuit available	Yes (Egan)	No (Moradi-Shalal)
Claims-handling deadlines enforceable	Yes, 10 CCR 2695	Regulator complaints only
Your main remedy after denial	Appeal, regulator complaint, bad faith suit	Lawsuit against the driver

What to Do After a Denial

Third-party injury denial. Preserve everything: photos, the police report, medical records, every letter from the adjuster. A well-built demand letter with documented damages forces a written response and starts the paper trail. If the insurer won’t move, the lawsuit against the driver is the remedy, and it has to be filed inside the two-year window.

First-party denial. Request the denial in writing with its stated basis if you don’t already have it. Appeal in writing and cite the claim file. File a Request for Assistance with the California Department of Insurance, which investigates complaints and has recovered real money for consumers, though it can’t award damages itself. If the denial looks unreasonable, talk to an attorney about bad faith. That threat is what moves insurers.

Health denial. File the internal appeal, which you generally must do within 180 days. If it fails, request an Independent Medical Review through the DMHC, or the Department of Insurance if it regulates your policy.

FAQ

What are the two main reasons insurance claims are denied?

Across all insurance types, the two biggest categories are policy exclusions (the loss isn’t covered) and administrative problems (missing documentation, errors, missed deadlines). In injury claims specifically, fault and causation disputes take their place.

Is it common for insurance companies to deny claims?

For health insurance, yes: ACA marketplace insurers denied about 19% of in-network claims in 2024. For auto injury claims, no reliable denial statistic exists, and outright denials are less common than reduced offers based on disputed fault or disputed injuries.

Can I sue an insurance company for denying my claim?

If it’s your own insurer, yes. California recognizes insurance bad faith as a tort, with damages that can exceed the policy. If it’s the at-fault driver’s insurer, no. Since 1988, California law bars injured claimants from suing the other side’s insurance company directly. Your lawsuit is against the driver.

What should I do first after a denial?

Get the denial in writing with the specific reasons stated. California requires that for regulated claims. The stated reason determines everything that comes next: which appeal, which regulator, which deadline.

Talk to Someone Before the Clock Runs

A denial letter is a position, and positions change when the evidence and the pressure change. If an insurance company denied your injury claim after a California accident, DK Law offers free consultations, and you pay nothing unless we recover for you. Call today, because the two-year filing deadline does not wait for negotiations to finish.