In just about every U.S. jurisdiction, including California, insurance carriers have a duty to settle legitimate claims for the policy limits or face potential legal exposure if the person bringing the claim obtains a verdict or award in an amount higher than the coverage limits. For example, California Insurance Code 790(h)(5) requires insurers “in good faith to effectuate…. settlements of claims in which liability has become reasonably clear.” Likewise, CA courts have held that, “In deciding whether or not to settle a claim, the insurer must take into consideration the interests of the insured” and breaching this duty to accept reasonable settlement offers can expose the insurance company to liability for damages caused by the breach, regardless of policy limits. Hamilton v Maryland Casualty Co. (2002) 27 Cal.4th 718, 725. Many other states have same or similar statutes on the books and court decisions supporting this notion. I thought I would explore this legal issue and see how it benefits consumers who are able to use this for leverage to resolve claims.
Process for dealing with denial of a legitimate claim by an insurance carrier:
Insurance companies deny claims all the time. Sometimes, they still defend the person being sued (their insured) and sometimes they simply leave them hanging. In the first instance, providing the insurance carrier with all of the documentation and evidence to support the legitimacy of both liability and damages is crucial in any later attempt to bring a claim against them for wrongful non-payment and when a judgement is obtained in excess of the policy limits, it will make it much more likely that the insurance company will simply pay the full amount of the judgment rather than face a bad faith or breach of contract claim against them by their insured. In the second instance, the person claiming damages may have to simple take a default judgment against the insured and then have the insured assign their rights to sue the insurance company for denial of the claim over to the injured party. There are some states that have so called “third party bad faith” claims. This allows the person who has been wrongfully denied payment of a claim against an insured individual to seek redress directly from that person’s insurance company. In other jurisdictions, where there is only “first party bad faith”, the process of assignment described above may be necessary before action can be taken.
Importance of having competent legal counsel to assist you in the event your claim against a person with insurance is denied:
It cannot be stressed enough that setting up the proper “paper trail” and evidencing the bad faith denial of a legitimate claim for damages is essential to seeking damages from the insurance company at some point after the denial. This is always best done through the assistance of competent legal counsel familiar with the laws of your particular state with respect to an insurance company’s duty of good faith and fair dealing. In a perfect world, insurance companies would simply accept all legitimate claims and pay out the reasonable value of the claim. Unfortunately, as we have pointed out in numerous other posts in this blog, we are not living in a perfect world and valid claims get denied much more often than they should. Hiring a lawyer to keep fighting is the only way to ever get such claims addressed.
For more information on California insurance law on these issues and the process of policy limits demands in auto accident and other types of claims, click here.