Although the words may be used to describe other types of claims, the term "claims litigation" is generally used to refer to disputes that arise between an insurance company and its insured, or between an insurance company and someone who was injured by an insured. Insurance companies have an obligation to pay claims arising out of accidents covered under the insurance policy purchased by the insured. In some cases, the insurance company denies liability for the damages, in which case claims litigation becomes a possibility. If the insured, or someone injured by actions of the insured, files a lawsuit in order to secure compensation for the damages that the insurance company denied, then the parties are said to be engaged in claims litigation.
The most common example of a claim that may end in litigation is a car accident. In most jurisdictions, drivers are required to carry liability insurance in the event they are found to be liable for a vehicular accident. If the occupants of the car that was involved in the collision are unwilling to accept an out-of-court settlement for their injuries, or if the insurance company denies liability, then the insurance company must litigate the claim.
In reality, claims litigation management often begins long before a lawsuit is filed. While some claims filed by an insured or by an injured party are settled easily and quickly, many are not. When it becomes apparent that the insured or injured party is not willing to accept an initial offer of compensation by an insurance company, the insurance company typically hands the case off to their claims management department. The claims management department often consists of at least one attorney and a number of claims management specialists. The job of the claims management team is to avoid actual claims litigation.
If litigation becomes inevitable, then the claim is typically handed over to legal counsel for the insurance company. The cost of claims litigation can be quite high for the insurance company once an actual lawsuit has been filed. Insurance claims are civil lawsuits and are, therefore, initiated by the plaintiff, or injured party, filing a claim against the responsible party. Technically, the lawsuit must be filed against the insured, not the insurance company; however, the insurance company frequently has an obligation to provide legal counsel and to defend the insured. If the lawsuit is not settled during the litigation process, then the case will proceed to trial and a judge or jury will determine liability.