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Insurance Bad Faith

As Beth discussed in her prior Blog post, if you are sued and the verdict is in excess of your available insurance limits, you may have a claim for Bad Faith against your insurance company. We are required to purchase liability insurance and assume if we are at-fault our insurance carrier will truly be our “Good Neighbor” and take care of us. However, the insurance company makes the decision about what to do for you. So if you are sued, the insurance company decides what offer to make and whether it will entertain fruitful settlement discussions with the Plaintiff. In essence, your insurance company decides whether you will be sued or not based on how they deal with the plaintiff in settling his or her case.

Bad Faith claims usually arise when the insurance company failed to settle a case with a plaintiff within the available insurance coverage and then later a verdict is rendered against the at-fault party for an amount in excess of the insurance limits. In North Carolina, you are required to carry at least $30,000.00 per person/ $60,000 per accident. The majority of time, in my practice, the plaintiff would like to resolve the claim within the limits of the at-fault party’s insurance coverage. Most plaintiffs are not seeking to displace someone from his or her home or someone’s retirement. However, when the insurance company refuses to attempt to settle in good faith, my clients sometimes have no choice and at that point are a little irritated they are not being treated fairly.

An example of bad faith practices by an insurance company is when a plaintiff is seeking to settle his or her claim for let’s say the $30,000.00 worth of available coverage. The insurance company offers $25,000.00 and no more. The insurance company is basically telling the plaintiff, “I won’t pay you more so go file suit (against my insured) and try to get more”.   Filing a lawsuit is, of course, a long, expensive and risky process.  But the plaintiff has no choice but to file suit and let’s say gets a verdict of $50,000.00. The insurance company then pays the $30,000.00 according the contractual language of its insured’s policy but leaving its insured to pay the plaintiff the other $20,000.00 from his/her own pocket. Now, if you are like me, I’d be a little ticked if my insurance company could have settled this claim for $30,000.00 and protected my home, car and retirement. Now you owe another $20,000.00 to someone you accidentally hurt. Once you discover the insurance company has not acted in your best interest, you now have a claim for potential bad faith. Some insureds will tell their company, “It’s not my fault”, or “How can they be hurt that bad”, or “I don’t want them paid”. If you tell your company this and then have the above verdict against you, there is no bad faith. In other words, the insurance company acted in the manner you wanted them to and thus they are protected from bad faith. However, if you tell the insurance company to pay the claim to protect your assets like your home, retirement, etc., then you have a better shot at a bad faith claim. I would also recommend if you want the insurance company to resolve the claim to keep your assets protected that you send this in writing via certified mail to document the insurance file.

If you succeed in a bad faith claim against your insurance company, the insurance company could potentially owe you the excess amount. In the example above, it could be enough to cover the excess amount you owed the injured party. Depending on how bad the insurance company acted and what the documentation and claim files show, you could potentially recover more than the excess verdict under various statutes.

I look at bad faith as accepting responsibility. If it’s your fault, accept it and have it handled properly; it could keep you from losing your home or a retirement you have worked hard to obtain. I also recommend you review your insurance coverages. I firmly believe $30,000.00 worth of coverage is not enough to protect you when you are responsible for an accident. Our firm will review your insurance coverage for free and provide you advice on how to best implement an insurance policy that will adequately protect you.  Click here to visit our Online Legal Forms and Advice Store and you can upload your insurance declaration page for a free review by one of our attorneys. 
Posted by:  Jennifer Seate, Partner, Leone Noble & Seate

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