How to Hold an Insurance Company Responsible for Trying to Take Advantage of You
The following article is the fifth in a series of 9 articles that explain the different concepts involved in insurance policies as they relate to personal injury in automobile accidents. This article focuses on explaining the term “bad faith” as it relates to insurance policies.
Insurance Bad Faith in Georgia
One of the reasons for entering into a contract with another person or a company is so that you both know the terms of your agreement. It’s documented in black and white. You both know of your rights and responsibilities under the contract.
An insurance policy is a contract. And, courts have decided, again and again, that there is an implied promise for insurance companies to deal with policy holders in good faith. Courts have gone on to decide that breaching that promise means the insurance company has demonstrated bad faith toward their policy holder.
When insurance companies fail to uphold their promise to deal with policy holders fairly and in good faith, it creates the a claim for which the policy holder can sue the insurance company based on a “bad faith” claim.
Let’s look at an example. Kurt has an automobile insurance policy with a damages limit of $25,000. Kurt has an automobile accident in which he was clearly in the wrong. As a result of the wreck, Drew is seriously injured. Kurt admits he caused the wreck. The police report says that Kurt is at fault. Drew makes a claim with Kurt’s insurance, State Farm. State Farm company hires an attorney to defend Kurt. Drew’s attorney explains to State Farm that the damages claimed will be worth the entire $25,000 of the policy limit, and probably more. Rather than taking the attorney’s advice and settling the claims for $25,000, State Farm decides to take its chances at trial, forcing Drew to file a lawsuit against Kurt. At the conclusion of the trial, the jury returns a verdict of $150,000 in damages against Kurt. Kurt now owes $125,000 because he only had $25,000 in insurance. Kurt wishes his insurance company had accepted Drew’s offer to settle for $25,000.
From State Farm’s viewpoint, it is better to decline an offer to settle for the entire amount of the policy limit. From a purely intellectual standpoint, all State Farm will owe is the policy limit. In the example above, that amount is $25,000. In many past cases, the insurance company has seen juries return verdicts for less than the policy limits. If the jury verdict is more, the insurance company will not be held responsible for anything over the policy limits. Anything over the limit will have to be paid by the policy holder.
In Georgia, this plan could backfire on State Farm. Courts have said that since the insurance company controls the defense for their policy holder, pays for the defense and determines what is paid or unpaid, they cannot just leave their policy holder on the hook when these gambles don’t pan out as planned. Attempting to do so is considered to be operating in bad faith by the insurance company.
Courts have taken the position that when insurance companies decide to gamble in court, they must do so at their own financial risk and not at the expense of their policy holder. When an insurance company tries to make their policy holder financially responsible for damages above the policy limits, they create the opportunity for their policy holder to sue them for bad faith. What usually happens when this occurs is that the policy holder assigns their bad faith claim to the plaintiff. Then, the plaintiff will pursue the bad faith claim against the insurance company and will keep any damages received in that claim.
There are other actions insurance companies sometimes take that have been judged as bad faith actions. These include:
- attempting to coerce the insured to contribute to a settlement
- delaying or failing to properly investigate or defend a claim
- rejecting the advice of its own attorney
- failing to keep the policy holder informed
In sum, insurance companies hold a lot of power when it comes to settling an insurance claim in Georgia. However, policyholders are not without some recourse when an insurance company refuses to do the right thing. To continue learning about insurance coverage in Georgia, here are the titles and links to all the articles in this series:
- When Can I Recover from Someone’s Else’s Insurance?
- The Declarations Page
- Duty to Defend
- Reservation of Rights
- Bad Faith (this article)
- Commercial General Liability
- Direct Actions Against Insurance Companies
- Uninsured Motorists
- Underinsured Motorists