Let’s say that I’m a motorist who runs into a pedestrian. Can the insurance company simply settle for the policy limits rather than defend me in a lawsuit?
Under the insurance policy, the insurance company has the right to make some of that decision, so they likely didn’t do anything improper at that point.
For example, let’s say that they decide that they want to pay the policy limit of $50,000 instead of having to defend the driver, yet it can be proven that the driver hasn’t done anything wrong. With the conditions of the insurance policy, they have a right to settle the $50,000 to get recovery.
What if the insurance company says, “Ok, we’ll give you $50,000,” but the injured pedestrian says, “No, I want a million.” Is there insurance bad faith case-law out there where insurance companies have failed to defend their insured?
Basically, if they flat out fail the defendant and say, “I’m not going to defend you” and the terms and conditions of the policy require them to defend, then the insurance company is acting as a broker at that point. Under that scenario, it’s a combination of the insurance company’s duty to make a reasonable settlement offer to the injured pedestrian and their duty to defend their insured motorist.
For example, let’s say there are extensive damages, and the insurance company has a $100,000 limit. They offer to settle for $100,000, and the insurance company says, “we don’t think the damages are $100,000, I think we can get out of here for $75,000, and the driver says, “Well, I want to be done with this. Just pay them $100,000,” and the insurance company chooses to not take the $100,000 offer, and then loses at trial. Let’s say there is a verdict in favor of the pedestrian for $500,000, under the terms and conditions of the policy the insurance company only has a $100,000 limit, but they have a duty to settle for the limit of $100,000, and then they expose their insured to $400,000 that they are supposed to pay, the insurance company is then looking at a bad faith claim for exposing their own insured to $400,000 in damages since they didn’t make a reasonable decision at the time, thinking they could save $35,000 by rejecting the $100,000 reasonable settlement.
Inadequate Counsel: Let’s say that I, as the insured who caused the accident, feel that the insurance company is just going through the motions because their maximum exposure is $100,000, and it is guaranteed that they are going to pay that much because the pedestrian is seriously injured? Is here any argument that the driver can make that they didn’t have adequate counsel from the insurance company?
Only if they feel like the insurance company’s appointed attorney didn’t represent their interests. If they think that they were advocating solely for the insurance company rather than the individual’s best interest, there may be a claim but that’s a fact-intensive set of circumstances.
Ineffective Counsel or Inadequate Discovery: Can you find yourself ever making that argument where someone comes to you and says, “This lawyer from the insurance company performed very little discovery and was not prepared for trial, or it looks like he wasn’t prepared for trial? How would you look into a case like that? Is that something that might be a viable possibility?
Yes. Definitely. One of the duties to defend is that you have to have effective defensive counsel. If the insured’s counsel was shirking its duties because the insurance company told them, “Well, you have a $100,000 limit, and let’s save money on the cost of the defense because we’re going to turn over the $100,000 after there is a big verdict against our client. Then you potentially have a bad faith case.
That’s one of the protections that the driver purchased when he bought insurance. He bought two things: Liability coverage and coverage to defend him in the case where he negligently operated the vehicle and caused harm to another.
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