Let’s imagine that your auto insurance sets policy limits to $100,000, and you get in a car accident where the other party sues you for a $500,000 settlement demand. Nonetheless, the other party is willing to settle out of court for $100,000. When you spoke to your insurance carrier, they refused to settle out of court because they believed their insurance adjuster could work out a lower verdict with the jury. This selfish act puts you at risk of a verdict above the $100,000 policy limit.

For instance, say the jury decides to award the other party $2 million; that means the insurer will only cover $100,000 of the verdict in excess of policy limits, and you must provide the remaining $1.9 million.

Under California law, if an insurance company does not settle a claim within the policyholder’s policy limits, the court may place the insurer in liability in excess of the policy limits based on violating their duty of good faith. Below, our top Los Angeles personal injury attorney, Michael Ehline, details everything you must know to protect your rights against greedy insurance companies and defendants denying liability.

Failure of Duty to Defend: Excess Verdicts and Insurance Bad Faith

If an insurance company fails to settle a coverage dispute within the policy limits, it risks the policyholder’s assets. This is a form of bad faith conduct because the insurance company puts its interests ahead of the interests of its policyholder. An insurer has to settle within the insured’s policy limits.

You Could Lose Everything?

Suppose your insurance carrier puts you at risk of an excess verdict. In that case, it can wipe out your personal assets, including your house, car, retirement savings, and everything else, because your insurance company puts its own interests ahead of yours.

The insurers must settle claims against any insured pursuant to the covenant of good faith and fair dealing implied in all policies.

Under the law, if the policyholder’s liability limit is clear, and the lawsuit is heading for a verdict over policy limits, an insurance company has a duty to initiate settlement negotiations.

An insurance company must accept a reasonable settlement offer within policy limits when there is a likelihood that a verdict will exceed policy limits. This obligation applies to primary as well as excess insurance companies.

Is an Insurance Company Acting in Good Faith?

In determining whether an insurance company’s failure to compromise a claim is a breach of duty to the insured, requiring a response for any judgment recovered against him in excess of the amount limited in the policy, the vast majority of jurisdictions think that the insurer must act in “good faith.”

[The decision] must be honest and intelligent if it is a good-faith conclusion. So that it is genuine and intelligent, it must be based on evidence backed by the facts and circumstances upon which they predicated the liability and upon an understanding of the extent and nature of the injuries the other party is suing for as they can reasonably ascertain them.

This obligation requires the insurance company to diligently ascertain the facts upon which an intelligent person may predicate a good-faith judgment. Nonetheless, an insurer’s failure to defend a policyholder within policy limits can result in an excess verdict, which can mean financial ruin for the policyholder.

The Duty is Implied By Operation of Law

Insurers’ obligation in good faith and fair dealing implies that every insurance policy obligates the insurance companies to accept a reasonable settlement offer for a lawsuit by a third party against the policyholder within policy limits whenever there is a substantial likelihood of a recovery in excess of those limits.

The insurance carrier must evaluate the reasonableness of an offer in order to settle whatever the lawsuit against the insured is by considering the probable liability of the insured and the amount of that liability without regard to any coverage defenses.

Your Insurance Coverage and Settlement Demand

Suppose your insurance company refuses to settle a claim or the insurance company failed to defend a lawsuit that resulted in an excess verdict. In that case, you deserve the legal representation of expert attorneys in California. Call (213) 596-9642. An Ehline Law Firm bad faith attorney is waiting to answer your call any time.

Your liability insurance imposes two different obligations for insurance companies: 1) to defend you and 2) to indemnify you against covered claims. (Howard v. American National Fire Ins. Co. (2010) 187 Cal.App.4th 498, 519.)

The need to defend establishes the framework for the obligation to settle. This is because an insurer’s obligation to settle claims exists before the conclusion of judgments and factual findings on claims required to determine insurance coverage.

Thus, an insurer must frequently fulfill its obligation to settle without having the information essential to determine whether or not there is actual coverage.

What Will You Do?

The safest course for insurers facing the possibility of an unreasonable and unlikely judgment that may exceed policy limits is encouraging and allowing the insured to retain personal counsel at its own expense to monitor this possibility. That means for you to establish an attorney-client relationship with us as soon as possible. We offer a free consultation and case evaluation.

Policyholders who may be facing the possibility of an adverse judgment in excess of their insurance policy limits should contact Ehline Law Firm for free case evaluation that will fairly show whether your case may be a verdict in excess of policy or otherwise expose yourself to an uninsured loss and without evidence necessary to prove their insurance company failed to protect their interests.

Factors to Consider in Evaluating Insurer’s Conduct

In determining whether your insurance company acted unreasonably or without proper cause, you may consider whether the defendant did not attempt in good faith to reach a prompt, fair, and equitable settlement of the injured plaintiff’s claim after liability had become reasonably clear.

Under California law, an insurer’s duty is to make reasonable efforts to settle lawsuits against its insured. The law imposes a responsibility to protect the insured from exposure to liability limits (Murphy v. Allstate Ins. Co.(1976) 17 Cal.3d 937, 941.)

This duty ensures that the insured does not suffer due to the insurer’s gamble (Id.) Thus, the insurance company’s duty to settle protects the policyholder by imposing the risk of a verdict above policy limits where the insurer rejects a reasonable settlement offer on the insurance company.

Get Legal Advice from an Unbiased Bad Faith Lawyer

Suppose you have an opportunity to settle your case within policy limits. But if the insurance company refuses, you must seek independent legal advice from a lawyer with several years of experience and an indisputable track record. A settlement may be in the insured’s best interests, and the insurance company’s unreasonable refusal to settle may give rise to bad faith liability.