An insurance company is refusing to settle a claim that has clear liability and damages that exceed policy limits? Bad faith? Duty to settle? How does it all come together?
Insurance companies offer policies to the general public. Those that purchase those policies are called policy holders.
An insurance policy exists to shield the policy holder from judgments and damages resulting from the negligent actions of the policy holder. The insurance company acts as a fiduciary to the policy holder. In exchange, the policy holder must make continued payments in the form of premiums.
An insurance company has a duty to act in good faith to settle all claims within the policy limits when the policy holder’s liability is clear and the judgment would likely be in excess of the policy limits. A policy holder may be personally liable for a judgment that exceeds the policy limits. By failing to adequately protect the policy holder, the insurance company begins acting in bad faith. Bad faith claims are brought forward either as a first-party or third-party claimants. This is ultimately dependent upon the party relationship and type of coverage; BI or UM.
However, if an insurance company acts in bad faith while handling a claim, then the insurance company will be found liable for the excess judgment and damages. This constitutes a breach of the insurance company’s duty to settle a claim within policy limits. When liability is reasonably clear and there wasn’t a good faith attempt for a fair and reasonable settlement based upon the liability and damages; i.e., statutory bad faith, this breach opens the door for the insurance company to be on the hook for the excess judgments (judgments over the policy limits).
In order for this whole process to begin, a demand letter must first be sent out to the insurance company. The demand letter should generally include but not necessarily be to limited to the following; evidence of liability, medical expenses, doctor notes, surgery letters, post treatment costs, and any pain and suffering.
It is important that when drafting a demand letter to have an experienced personal injury attorney do the work.
Consequently, a demand letter will set the tone for the entire claim. The demand letter gives the insurance company an opportunity to fulfill their duty. This allows them to settle a claim and conduct their own investigation. The insurance company must be given the opportunity to tender the policy limits. If the value of the claim clearly exceeds the policy limits and the insurance company refuses to settle the claim then the door becomes open for bad faith.