If Your Insurance Claim Was Denied, Here Are Your Rights Under Arkansas Law
What Arkansas's First-Party Claims Law Means for You
You pay your insurance premiums faithfully, month after month, year after year. Then the day comes when you actually need your coverage: your home floods, your car is totaled, you are hit by an uninsured driver, or your medical bills pile up. And your insurance company denies the claim.
If you are an Arkansan, you do not have to simply accept that answer. Arkansas law gives policyholders meaningful rights to challenge a wrongful denial, and it backs those rights up with real financial consequences for insurers who do not pay what they owe.
What Is a First-Party Insurance Claim?
A “first-party” claim is one you make against your own insurance policy, not against someone else’s. When most people think of suing an insurance company, they picture chasing down the other driver’s insurer after a car accident. But first-party claims are different: they involve your own policy, your own insurer, and benefits you paid for directly.
Arkansas’s first-party insurance statute applies broadly to policies issued or delivered in Arkansas. The most common first-party claims, and the ways insurers tend to dispute them, include:
- Homeowners insurance. Insurers often dispute storm, fire, or water damage claims by arguing the damage is cosmetic only, predates the loss, or falls under an exclusion in the policy.
- Auto insurance. Collision and comprehensive coverage disputes are common when an insurer values a totaled vehicle below its actual cash value, or refuses to pay for repairs it claims are unrelated to the covered incident.
- Uninsured and underinsured motorist (UM/UIM) coverage. UM and UIM claims are among the most frequently litigated first-party disputes in Arkansas. If you are seriously injured by an uninsured driver or a driver without adequate coverage, your own insurer steps in, and sometimes disputes the value of your injuries.
- Individual health and life insurance.
Policies you purchase directly (not employer-sponsored group plans, which are typically governed by federal ERISA law) are the kind most often disputed over what counts as a covered benefit.
In each of these situations, you are the policyholder making a claim under your own policy. Arkansas law treats these claims seriously and protects you when your insurer does not.
Arkansas Law: The Right to Sue Your Own Insurer
When an Arkansas insurance company wrongfully denies or underpays a first-party claim, the policyholder has the right to sue. Arkansas Code Annotated § 23-79-208 is the key statute, and it does not just give you a right to recover what you are owed. It creates powerful incentives for insurers to pay legitimate claims fairly and promptly.
Under this law, if you file suit against your insurer and recover an amount that is within twenty percent (20%) of the amount you sued for, the court may award you:
- A twelve percent (12%) penalty on the amount recovered, on top of the benefits themselves
- Reasonable attorney's fees
- Pre-judgment interest
- Court costs
This is not a discretionary remedy; it is mandatory. If you meet the threshold, the court must award the penalty and fees. That changes the entire dynamic of a dispute with your insurance company.
What Does "Within Twenty Percent" Mean?
The 20% rule is critical to understand. It means that as long as your ultimate recovery is at least 80% of what you demanded in your lawsuit, you are entitled to the penalty and fees. You do not have to win every dollar you asked for; you just cannot have dramatically overstated your claim.
For example: if you sue for $100,000 and a jury awards you $82,000, you are within 20% of your demand, and the court must add the 12% penalty ($9,840) plus your attorney’s fees on top of that verdict. If you sued for $100,000 and recovered only $70,000, you would fall outside the 20% threshold.
This structure rewards policyholders for making realistic, well-supported claims, and it rewards their attorneys for taking cases on contingency, because the fee award makes representation economically viable even when the underlying claim amount might not otherwise support it.
Steps to Take When Your Claim Is Denied
If your first-party claim has been denied or underpaid, here is what you should do:
- Get the denial in writing. Ask your insurer to provide a written explanation of the denial, including the specific policy provisions they are relying on.
- Review your policy carefully. The denial letter may cite exclusions or conditions, so read them closely to see if the insurer’s interpretation is actually supported by your policy language.
- Document your damages thoroughly. Gather photographs, estimates, medical records, repair bills, and any other evidence that supports the value of your claim.
- Don’t accept a lowball settlement. An initial offer is not a final offer. Once you accept a settlement and sign a release, you typically cannot go back.
- Consult with an attorney. Arkansas’s fee-shifting statute means that an experienced insurance attorney can often take your case on contingency, meaning no upfront cost to you.
- Act before the statute of limitations runs. There are time limits on filing suit. Waiting too long can cost you your rights entirely.
Why This Matters: Leveling the Playing Field
Insurance companies are not equal parties in a dispute with their own policyholders. They have claims departments, in-house counsel, and years of experience managing and minimizing payouts. Most policyholders, by contrast, have never been through the claims process before and do not know what their policy really covers.
The 12% penalty and mandatory attorney’s fee provisions exist precisely to address this imbalance. They deter insurers from wrongfully denying or low-balling claims, because losing a lawsuit does not just cost them the claim amount. It costs them a penalty and the policyholder’s legal fees too. In practice, this makes it far less profitable for an insurer to “just say no” and hope the policyholder gives up.
It also means that an Arkansas policyholder with a legitimate claim can find legal representation even if the dollar amount of their claim would otherwise make hiring an attorney economically impossible. The fee-shifting provision enables attorneys to take first-party insurance cases on contingency and know they can recover their fees if they succeed.
A Note on Group Health and ERISA Plans
It is important to distinguish individual insurance policies from employer-sponsored group health plans. Most employer-provided health coverage is governed by a federal law called ERISA (the Employee Retirement Income Security Act), which generally preempts state insurance law, including Arkansas’s penalty and fee-shifting statute. ERISA has its own remedies, which are generally more limited.
However, individual health insurance policies purchased directly by the policyholder (not through an employer) are not subject to ERISA and remain governed by Arkansas law. If you are unsure whether your policy is an individual policy or an employer-sponsored plan, an attorney can help you determine which law applies to your situation.
Frequently Asked Questions
Do I need a lawyer to sue my own insurance company in Arkansas?
You are not required to have a lawyer, but Arkansas’s fee-shifting statute makes it possible for an attorney to take a first-party insurance case on contingency, meaning there is typically no upfront cost to you. Given how technical insurance policy language and litigation procedure can be, most policyholders benefit from experienced representation.
How long do I have to dispute a denied insurance claim in Arkansas?
Time limits vary depending on the type of policy and the specific claim, and they can be shortened by language in your own policy. Because waiting too long can permanently bar your claim, it is best to speak with an attorney as soon as possible after a denial rather than assuming you have ample time.
What if my claim was underpaid rather than denied outright?
Underpayment is treated the same as a denial under Arkansas’s first-party statute. If you have to sue to recover the difference and your recovery is within 20% of what you sued for, the same 12% penalty and attorney’s fee provisions apply.
If your homeowners, auto, UM/UIM, or individual health insurer has denied or underpaid your claim, speaking with an insurance attorney can help you understand whether your situation falls within the protections Arkansas law provides. Most consultations are at no cost to you.
At Lovell, Nalley & Nalley, we have been representing clients in Saline County and across Arkansas in first-party insurance claims for almost 40 years. If you would like to speak with an attorney about your situation, contact us today for a free consultation.
This blog post is for general informational purposes only and does not constitute legal advice. Reading this post does not create an attorney-client relationship. Contact our office directly to discuss your specific situation.
