If I defaulted on my auto loan but my car was recently stolen, can the insurance company legally deny the claim for auto theft?

Asked on September 22, 2012 under Insurance Law, North Carolina


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 8 years ago | Contributor

Yes, they may be able to do this:

1) Check your policy--it may provide that you have to be current on loans, financing, etc. to have the benefit of coverage.

2) Even if 1) above is not an issue, the insurer will not pay if it believes that you may have colluded in the alleged theft. Someone who is unable to pay his auto loan has a strong incentive for a car to be "stolen" so as to get out from under payments and to collect the insurance; the insurer may find your situation highly suspicious.

If you believe that you are entitled to coverage and payment, but your insurer will not pay it, you could sue the insurer to enforce their obligations under the insurance policy, which is, after all, a contract.

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