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: