| In routine personal injury cases, there is a limit to | | | | take the money. If it's a $10K policy and a million |
| how much money can be recovered. Insurance | | | | dollar injury, there's not much to lose in the bad faith |
| policies have "policy limits". If the car that hit you has | | | | route and a lot to be gained. |
| a $50,000 insurance policy, that's the maximum that | | | | From personal injury to bad faith |
| can usually be won in a lawsuit or settlement. The | | | | If the case doesn't settle and the verdict is larger |
| insurance company will not settle with the injured | | | | than the policy (an excess verdict), the personal |
| person for more than the policy, and any settlement | | | | injury case is now over and the bad faith part of the |
| will have to release the driver and owner from | | | | case is about to begin. It's important to understand |
| further liability. While it is possible to go after the | | | | that the "bad faith" is not how the insurance |
| owner and/or driver, this is usually much more difficult | | | | company treats the injured person - it's how they |
| and is extremely rare. | | | | treat their own customer. The duties discussed |
| In bad faith cases these limits can be exceeded. Bad | | | | above are duties the company owes to its customer |
| faith occurs when the insurance company does | | | | - the one who paid for the insurance policy. |
| something wrong, leading to a verdict of more than | | | | The questions in a bad faith case turn mainly on how |
| the policy limit and exposing the insured to personal | | | | the insurance company dealt with its customer, and |
| liability. | | | | its contractual duties. Did the insurance company |
| For starters, let's be clear on the insurance | | | | investigate the claim properly? Did it keep the |
| relationship. You pay car insurance. The car insurance | | | | customer informed about the status of settlement |
| company then owes you certain duties. If you have | | | | negotiations? Did it defend the case to its fullest? If |
| an accident, they are supposed to investigate and | | | | they didn't settle, did they have a good reason? If |
| take care of claims that come out of that accident. | | | | they breached any of these contractual duties to |
| If you get sued, they have to provide you with a | | | | their customer, then the customer has a claim against |
| lawyer to defend you. And if you lose the lawsuit, | | | | the insurance company, for the amount of the |
| they have to pay the amount awarded, up to the | | | | verdict in excess of the policy. |
| policy limit. One of the most important duties they | | | | If there's a $50K policy and a $150K verdict, the |
| have is to negotiate in good faith. If it's clearly your | | | | insurance company pays the injured person $50K. |
| fault and the person is really hurt, then they have to | | | | Now the injured person files a judgment against the |
| consider the situation, evaluate it, and try to settle | | | | person who hit them (the insurance customer) for |
| the claim within the policy limits. There's more, but | | | | $100K. The customer now owes the plaintiff money |
| that's a good beginning. | | | | and risks losing their house, other assets, having their |
| Imagine if you hit someone in a crosswalk and they | | | | wages garnished, and suffering a major hit to their |
| suffer a broken hip. You tell your insurance company | | | | credit rating. |
| that it was your fault and plead guilty to a traffic | | | | At this point, the injured person and the customer will |
| violation. It's your fault. The injured person ends up | | | | typically make a deal. I won't go after your assets |
| getting hip replacement surgery two weeks after the | | | | and in exchange for that, you assign me your claim |
| accident. They were really hurt. | | | | against the insurance company. The injured person |
| An attorney contacts your insurance company and | | | | generally does not have a direct claim against the |
| demands $50K - the limit. He tells them, in a letter, | | | | insurer in personal injury cases. Now, effectively, they |
| that if they don't pay up within three months, he's | | | | have bought the customer's claim against the |
| going to sue you and will no longer accept the $50K. | | | | insurance company. |
| If that happens, you could be on the hook for | | | | The personal injury lawyer would then commence a |
| anything over $50K, and that might be $50K or more | | | | whole new lawsuit. The first suit was against the |
| with an injury like that. | | | | insurance customer, the person that caused the |
| In most cases, insurance companies will settle that | | | | accident. The new suit is against the insurance |
| kind of case quickly, probably even before the | | | | company for bad faith. After the process works its |
| three-month demand. We settled one vaguely simliar | | | | way through, a judge and/or jury will decide whether |
| case with a $50K policy after sending only a couple | | | | the insurance company breached its duties to its |
| of letters. From the insurance company's perspective, | | | | customer, and if so, require the insurance company |
| these cases should settle quickly. | | | | to pay the excess to the injured person. |
| But there are times when insurance companies don't | | | | Conclusion |
| do so well. In some situations the person assigned to | | | | The modern reality of bad faith cases is that it's a |
| the case is inexperienced, incompetent, or both. In | | | | hard road. In many states judges just don't like these |
| others the company's home office adopts an | | | | cases. From a plaintiff's perspective, there appears to |
| unrealistic policy that doesn't work in the field. And | | | | be a bias in favor of protecting insurance companies |
| sometimes they just drop the ball and there's no | | | | and limiting claims to the policy limits. In my opinion |
| explanation. | | | | these decisions mistreat the customer. Bad faith |
| Personal injury lawyers who know what they're doing | | | | claims should be treated for what they are, simple |
| will make a record of the bad faith. This means | | | | breach of contract cases. If the insurance company |
| sending letters documenting the efforts to settle and | | | | breached the contract, then they have to pay the |
| the insurance company's failures to act in good faith. | | | | consequential damages - they should have to clear |
| It may mean an appearance in Court and having a | | | | the judgment that has been filed against their insured. |
| settlement conference with the judge, recorded by a | | | | Since the courts do not follow this path, insurance |
| court reporter (also known as a stenographer). | | | | companies have been emboldened. They are more |
| Typically the plaintiff's attorney will set a deadline to | | | | prone to breach duties to their customers in order to |
| settle the case. If the insurance company comes | | | | save a buck here and there, adding up to millions a |
| around after that deadline, and offers the policy | | | | year in extra profits. The end result is that more of |
| limits, the injured person will have to make a decision. | | | | the costs get passed onto the injured person and |
| Either take the money now or take the long road | | | | settlements are delayed for no good reason, other |
| and try to get more through a bad faith claim. This | | | | than for insurance companies to earn more interest |
| decision depends on the risks faced and the potential | | | | while they hold the cash. The insurance customer |
| gain. If it's a $100K policy, the injury is worth an | | | | suffers too, as the case that should have been |
| estimated $150K, and there is a substantial risk of a | | | | resolved hangs over their head indefinitely. |
| verdict below $100K, then it may make sense to | | | | |