Most automobile Insurance Liability policies require the insured to obtain consent to settle with the at fault party from their own underinsured (UIM) insurance company before they can pursue an underinsured motorist car accident claim. When a personal injury attorney settles a case with a negligent motorist, they are required to give a release to the tortfeasor. Such release terminates the underinsured insurance companies rights of subrogation against the at fault party. This post seeks to explain the rationale for the consent to settle provisions and how some Courts have interpreted this type of contractual provision.
The reason that UIM insurance coverage is so critical is that UIM covers you or your passengers injury caused by a negligent motorist without enough coverage to compensate you for your injuries. After a motorist has exhausted all available policies of the tortfeasor, they are entitled to seek compensation based on their own UIM policies that they purchased.
It is imperative that car accident attorneys request that their client’s underinsured (UIM) insurer give permission to settle the cause of action before the injured victim signs a release discharging the negligent tortfeasor. If someone is foolishly representing themselves without the benefit of a motor vehicle accident lawyer then they must follow the same rules and laws that attorneys and solicitors must adhere to. Read more about uninsured motorist claims here: http://www.rhodeislandpersonalinjuryattorneyblog.com/2011/11/rhode-island-uninsured-underinsured-car-accident-insurance-claims-lawyer/
Perhaps, the Rhode Island Supreme Court said it best: “In consent cases, however, we have deemed that G.L.1956 § 27-7-2.1(h), when read together with a consent exclusion in an insurance policy, unambiguously requires that a plaintiff gain consent of his or her underinsurance carrier before settling with the tortfeasor. Consequently, failure to obtain consent in such circumstances bars the claimant from thereafter seeking the underinsurance coverage protections of his or her own policy.” Manzo v. AMICA Mutual Insurance Co., 666 A.2d 417, 417 (R.I. 785*785 1995) (mem.); but see Fraioli v. Metropolitan Property and Casualty Insurance Co., 748 A.2d 273, 275 (R.I.2000). http://scholar.google.com/scholar_case?case=17445632155322730971&q=rhode+island+consent+settle+underinsured+pickering&hl=en&as_sdt=40000006 Canavan v. Lovett, Schefrin Harnett, 745 A.2d 173, 174-75 (R.I. 2000) (per curiam)
What is the legal basis and rationale for the Consent to settle provisions for underinsured motorist claims?
The consent to settle provisions are a contractual obligation set forth in nearly all automobile, motorcycle and motor vehicle liability and indemnity insurance policies. Courts across the United States have determined that one of the primary rationales for the requirement is to protect the insurance company’s rights to subrogation. In other words, an insured or their personal injury lawyer on their behalf must obtain consent to settle from their own insurance company in order to protect the insurance companies rights to subrogation.
The Connecticut Courts have stated, “One purpose of a consent to settle requirement is to protect the subrogation rights of the uninsured motorist insurer against the tortfeasor. Berts v. Horace Mann Ins. Co., 14 Conn. Law Rptr. No. 17, 523 (1995). – See more at: http://corporate.findlaw.com/corporate-governance/connecticut-uninsured-and-underinsured-motorist-coverage-issues.html#sthash.D8reFPgz.dpuf”
What is the legal definition of subrogation? Subrogation is a very complex concept for laypeople that do not have formal training in tort and personal injury law. To oversimplify the concept, subrogation is a fancy word for reimbursement. It is when an insurance company pays the claim and reserves the right to file a lawsuit to go after the tortfeasor who negligently caused a bus, truck or motor vehicle accident.
According to Investopedia, “Subrogation is the right for an insurer to pursue a third party that caused an insurance loss to the insured. This is done as a means of recovering the amount of the claim paid to the insured for the loss.”http://www.investopedia.com/terms/s/subrogation.asp ***
According to Progressive Insurance, ““When your insurance company covers a loss that’s not your fault, they may pursue the at-fault party, which often is the other insurance company, to recover payments made for your damages and injuries. Insurance companies can only subrogate other parties if their customer is not at fault for an accident.” http://www.progressive.com/understanding-insurance/entries/2009/9/1/what_is_subrogation/
The Supreme Court of Washington State sitting en banc explained subrogation in great detail when the Court stated,“…Subrogation is an equitable doctrine the essential purpose of which is to provide for a proper allocation of payment responsibility. It seeks to impose ultimate responsibility for a wrong or loss on the party who, in equity and good conscience, ought to bear it.” RONALD C. HORN, SUBROGATION IN INSURANCE THEORY AND PRACTICE 3 (1964). MAHLER v. SZUCS,Supreme Court of Washington, En Banc. 957 P. 2d 632 – Wash: Supreme Court 1998http://scholar.google.com/scholar_case?case=6986763127236820299&q=definition+subrogation&hl=en&as_sdt=40000006
According to the Courts, what benefit does the consent to settle give to the indemnity (Insurance) companies?
The Rhode Island Supreme Court, sitting in the City of Providence, reasoned that “One critical purpose of the consent requirement is to allow the insurer to investigate whether the tortfeasor possesses sufficient assets beyond the policy limits to justify pursuing the lawsuit against the tortfeasor. Thus, before agreeing to its insured’s proposal to settle for the policy limits and to release the tortfeasor(s) and the liability insurer(s) for any further damages that the insured may have sustained, the UIM insurer had the right to investigate the prospects for recovering a judgment from the tortfeasor over and above the available insurance coverage. Because the liability, damages, and collectability factors that must inform any sound judgment about whether to settle a lawsuit-including the alleged tortfeasor’s financial status….” FRAIOLI v. METROPOLITAN PROPERTY AND CASUALTY INSURANCE COMPANY – See more at: http://caselaw.findlaw.com/ri-supreme-court/1058479.html#sthash.VyLPWI22.DWNcvaud.dpuf http://caselaw.findlaw.com/ri-supreme-court/1058479.html#sthash.VyLPWI22.dpuf
What obligations do an insurance companies owe contractually to their insured to give consent to settle to their insured in a car wreck case?
As a practical matter most insurance companies regularly and freely give consent to settle if the settlement is at the policy limits of the negligent operaters insurance policy. Unless the tortfeasor is very rich, it is unlikely that the insurance company could reasonably expect to exercise its subrogation rights and actually collect payment from the wrongdoer. Also, unreasonably or arbitrarily failing to give such consent could constitute a bad faith claim against the insurance company.
In Pickering v American Employers Insurance Co.,282 A.2d 584 (1971), an injured victim was a passenger in the front seat of an automobile. The car she was riding was rear ended by a taxi. As a result of the automobile collision, the plaintiff hit the dashboard and was thrown around the auto. This collision caused the injured victim to be hospitalized on multiple occasions and suffer lost wages. The seriously injured accident victim brought a negligence lawsuit in Providence Superior Court. The negligent tortfeasor who caused the car accident did not have enough insurance to compensate the plaintiff for her pain and suffering.
The Top Court in RI justified the rationale for the consent to settle provisions, “We have no doubt that this proviso is enforceable as it seeks to safeguard the insurer’s right of subrogation.” http://scholar.google.com/scholar_case?case=7549416070140428565&q=rhode+island+consent+settle+underinsured+claim&hl=en&as_sdt=40000006 But the RI Supreme Court could refuse to enforce the agreement as a draconian, punitive measure reasoning that, “Such a clause, however, carries with it an implied promise by the insurer that its consent will not be arbitrarily or unreasonably withheld.” http://scholar.google.com/scholar_case?case=7549416070140428565&q=rhode+island+consent+settle+underinsured+claim&hl=en&as_sdt=40000006
Is there an exception to allow an injured victim to get compensation from the underinsured insurance carrier as a result of an auto accident attorney’s negligent failure to obtain consent to settle?
Some courts have created escape valves which allow an injured victim to obtain compensation from their UIM carrier even though they did not obtain consent to settle from the tortfeasor. For example, the Rhode Island Supreme Court has required that the insurance company prove they were actually prejudiced by the victim’s failure to obtain consent.
“after settling with alleged tortfeasors and their insurers for the coverage limits of the tortfeasor’s liability policy without first obtaining their UIM insurer’s consent should not be barred from proceeding on their UIM coverage claims unless their failure to obtain consent prejudiced their UIM insurers.” http://caselaw.findlaw.com/ri-supreme-court/1058479.html#sthash.VyLPWI22.dpuf
How is Subrogation related to recovery of your deductible?
The theory of subrogation plays a major role in property damage claims especially when the issue of a deductible for a damaged automobile, motor vehicle or pick-up truck is concerned.
For example, you are on your way to the supermarket and have the right of way on a road. Another careless drowsy driving motorist who is distracted and texting while driving runs a stop sign and t-bone your car in a broadside car crash. Thankfully, you have full coverage for this wreck including liability, collision, rental car coverage and uninsured motorist protection. SADLY, your motor vehicle is a total loss and destroyed as a result of the side crash.
The other insurance company initially refuses to pay for your claim asserting that you were speeding and were web surfing while driving, according to an unreliable eyewitness. You need a car immediately for work and your own insurance company immediately cuts you a check for $16,899 so you can purchase another motor vehicle. However they deducted $750 to cover your deductible.
Your insurance company will now arbitrate its claim for subrogation against the other automobile insurance carrier. A witness comes forward and says you were not distracted at the time of the collision. As a result, the other insurance company reimburses the $16,8999 as well as your deductible , You get the deductible back as a result of the insurance subrogation claim!
Property and Casualty 360 describes this the best ,” In the circumstance where the uninsured person is at fault, the carrier’s subrogation efforts are the best chance the insured has of ever getting back any part of his or her deductible. As deductibles continue to increase in size, insureds become more interested in this process. I rarely meet an insured who understands why she or he has incurred a deductible when the other party is at fault. Recovery of the deductible becomes an important customer service issue where insureds do not expect to have any financial loss because the accident was not their fault. “http://www.propertycasualty360.com/2013/11/22/confessions-of-an-insurance-subrogation-attorney?t=loss-litigation&page=3
***For example: car A rear ends Car B in a catastrophic, automobile accident and car A was an uninsured, drunk driving hit and run motorist. The operator of Car B suffers a herniated disk and traumatic brain injury (TBI) and suffers pain and suffering as well as being permanently disabled and unable to work. Car B’s passenger is killed in the fatal auto crash. Since the hit and run inebriated motorist left the scene of the crash, the motorist and the estate of the deceased file wrongful death claims against the uninsured insurance company. When the indemnity company settles the underinsured claim and pays millions to the estate as well as the injured victim they then ‘step into the shoes’ of the injured person and the estate.
This means that the insurance company which paid millions can pursue subrogation rights against the criminal wrongdoer to get reimbursed for funds they paid to the injured victims.
In the event that the police are able to investigate, find and arrest the criminal motorist who fled the scene of the deadly / fatal wreck, the Insurance company who paid the claim can pursue subrogation rights against the criminal or his insurance carrier if he has insurance at the time of the mishap.
Article by Rhode Island and Massachusetts Personal Injury Attorney, David Slepkow 401-4327-1100. Obtain more information about David Here.