One of the most tragic scenarios that can arise in serious motor vehicle collisions in Kootenai County and elsewhere in Idaho, is where the insurance policy of the at-fault driver is too small to cover the damages of the injured Plaintiff.
At the time of this writing (May, 2020), Idaho law only requires drivers to carry $25,000 of liability insurance. Many are the catastrophic injuries resulting from car crashes, where the medical bills are well into six figures, and the injured Plaintiff has sustained lifelong disability or permanent loss of income.
There are two ways that a Plaintiff's attorney can surmount the $25,000 insurance policy limit. The first way is purely theoretical. The attorney can sue the at-fault driver and attempt to collect the full judgement against the assets of that driver. The problem here is that most persons who purchase the minimum policy limits have very few assets. If they had significant assets, they would have probably purchased a larger insurance policy.
The second method that a Plaintiff's attorney may utilize is to put the at-fault driver's insurance company in a “bad faith” posture – sometimes referred to as “opening the policy.” Here's how it works.
Every insurance company has a fiduciary duty to protect the financial interests of the insured policy holder. This includes the obligation to settle the lawsuit within policy limits if feasible to do so. Consider the following hypothetical:
If driver John Smith causes a car wreck, and only has $25,000 of liability insurance, the Plaintiff suing for the victim can put together a well organized ‘demand letter' to the insurance company, detailing all of the past and future medical care, loss of income and disability, that the victim has sustained. Assume that figure totals $250,000. The Plaintiff's attorney can then make a formal “policy limit” demand on the insurance claims adjuster to pay the full $25,000 policy limits, with a time limit on accepting the offer.
In some situations such as this, the adjuster will try offer a lesser amount, say $20,000, hoping that a desperately injured person will take any money as long as it provides money right now. However, in making the lower counter-offer, the insurance company has legally rejected the $25,000 policy limit proposal of the Plaintiff's attorney. Then, at trial, if the jury returns a verdict of $250,000, the insurance company is in what is termed a “bad faith” situation. The at-fault driver now has the ability to sue his own insurance company for failing to settle for policy limits when it had the opportunity to do so.
As a practical matter, in most such scenarios, the insurance company will save itself the expense of a second lawsuit by simply paying the Plaintiff the $250,000 jury verdict.
Insurance claims adjusters are only doing their job when they try to hold down the expense of car accident settlements. However, when they overreach, and fail to honor their fiduciary obligations to their policy holder, it can be much more expensive for the insurer in the long run.