An insurance company must protect its insured from a potential judgment greater than the insurance coverage, otherwise an insurance bad faith claim may arise, explains a California injury lawyer.
Insurance companies naturally want to avoid having to pay for claims. A company may even be willing to gamble at trial, knowing that the exposure is limited to the amount of insurance it must pay out. However, an insurer must not jeopardize the insured, or risk ruin of the insured, to avoid paying a claim. An insurer must consider the insured’s interest as it would its own.
Consider why an insurer must protect the insured. An insurance company typically chooses the defense attorney to defend a lawsuit. The insurance company controls the litigation. It is authorized to decide when to accept or not accept an offer of settlement. However, if the insurer wants to gamble and go to trial, it must be very careful to weigh the possible outcomes to the insured first. This is especially true if the insured stands to lose greatly if found responsible for an accident or injury. Here is a recent case in point:
Our client, a road construction company, was accused of violating safety measures causing a solo rollover accident that killed one passenger and severely injured two others. The damages portion of the case would clearly exceed the policy coverage of the insured, $2,000,000. In fact, early estimates were that the claims combined would exceed $20,000,000, 10 times the insurance coverage. The insurance company had an opportunity to settle the case before trial, within the policy coverage, but refused. It wanted to risk trial, deciding that there was no chance of liability. Unfortunately, it was wrong and the risk was far greater to the insured if even 1% liability was found. The company was not only risking damages to the insured, but also an insurance bad faith claim against it, explains a California injury lawyer.
The insurance company authorized the matter to trial on liability. The jury disagreed with the insurance company’s position and found some liability against our client. We were then brought into the case asking the question of the insurance company, “Why hadn’t you settled the case when you had an opportunity to do so?” The insurance company continued to refuse to settle for anything more than the policy limits. After review of the trial transcript and the early claims file, it was apparent that the insurance company wanted to risk a trial but that a jury could find some liability. We were successful in demonstrating to the insurance company that not only should it have predicted some potential liability, but also the risk was too great to take the matter to trial without making every effort to settle beforehand. We argued that the insurance company acted in bad faith, failed to protect its insured, and would further cause harm if the matter went on to a trial, which would probably bankrupt the client’s business. Eventually the insurance company agreed to pay the entirety of a settlement amount, $10,275,000.
If you, or your company, have been found responsible in excess of the policy of insurance, you should contact a bad faith attorney immediately to evaluate the claim and to assess whether you have rights against your insurance company. Even before a case has been submitted to a jury or to a judge for trial or arbitration, if you feel that your exposure is greater than the amount of insurance coverage, you should consult with a qualified attorney. Early intervention, in many cases, provides an incentive for the insurance company to settle the case or agree to protect you no matter what the outcome.