As the defendant in a car accident lawsuit, do I have to pay excess damages not covered by insurance?

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Jun 19, 2018

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If a jury awards damages in excess of your auto insurance policy limits, you are personally liable to the plaintiff for this amount. However, depending on the facts of your case and the settlement negotiations between your insurance company and the plaintiff, you may be able to sue your insurance company if they acted in bad faith during the litigation.

This type of action against your insurance company is sometimes known as a failure to settle claim. While courts will vary on the tests used to determine if the insurance company acted in bad faith when it refused to settle, the underlying considerations are usually the same. If you can show that based on the facts of your case, the insurance company should have, and had an opportunity to, settle within your insurance policy limits, then you have a strong case for failure to settle claim.

Successful Failure to Settle Claims

Despite varying state standards, there are common themes of successful failure to settle claims. Many courts will find an insurance company at fault for a failure to settle a claim if they failed to ascertain the facts of the accident when they had every opportunity to do so. In other words, if the insurance company fails to act with ordinary diligence, as another reasonable carrier would, then they may be held liable for the excess damages awarded at trial.

Some courts will find an insurance carrier liable for a failure to settle claim if, after reviewing the facts, it is shown that there was a substantial likelihood that the case was worth more than the insurance policy limits, and yet the insurance company unreasonably refused to settle within these limits. Some courts will look to see if the insurer gave equal consideration to the interests of the insured. For instance, if the insurer refuses to inform the insured of an offer to settle, or it is determined that the insurer acted unreasonably in light of the financial risk in the failure to settle by refusing to accept a settlement offer, they may be held liable.

All courts will look at similar considerations when determining if the insurance company acted in bad faith. Generally, these considerations will include determining the strength or the weakness of the third party’s case before trial; whether the insurance company refused to listen to the advice of its own attorney or agent; whether the insured misled the insurance company about the facts of the case; whether the insured requested settlement within the insurance policy limits; whether the insurer placed its own interests ahead of the insured; and whether the evaluation of the facts and the value of the case was competent.

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Litigating a Failure to Settle Claim

Litigating a failure to settle claim is a complex process. All of the files and records of the previous case must be gathered, and a timeline must be developed to recreate the events that took place. Your attorney will need to show that the insurance company acted unreasonably or in bad faith in refusing to settle. A good attorney will be able to take the chronology of events and determine if, where, and how many times this happened.

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