Insurers: Mess around and you'll pay $500,000 on a $300,000 policy.
Court hearings in the time of COVID. Not sure why I even wore suit pants.
Washington has some of the most protective insurance rights in the nation, and insurance companies better know it. This is one of the few areas where Washington allows punitive damages—amounts more than what is needed to compensate the plaintiff/victim that are intended to punish and deter the insurer.
A little background first.
First-Party Claims
When we are injured or property is damaged, we submit a claim to our insurance companies for coverage. This can be in the form of healthcare coverage, repair of a home, or to fix or replace a vehicle. These are called first-party claims. We make the claim with our own insurance.
Third-Party Claims
If we make a mistake and are potentially liable to someone for injury to them or damage to their property, they may make a claim against us. This is called a third-party claim. In this situation, our insurance company has the duty to defend (pay for our lawyer and litigation costs) and indemnify (pay a settlement or judgment up to the policy limits).
Insurance Rights
In either case, insurance is supposed to be peace of mind. If something goes wrong, we will not go bankrupt.
Our insurance rights are particularly strong when someone makes a claim against us. The reason is that the insurance company takes over the defense of the claim. They have to investigate the claim and try to negotiate a settlement within our policy limits so that we aren’t left paying more than that—sometimes substantially more.
This year my client sustained a serious hip injury and made a third-party claim against the responsible party (Defendant). Defendant’s insurer refused to pay policy limits, but made no discernable effort to investigate the claim value until well after the deadline we set for doing so. The Defendant was left with the possibility of substantial “excess” liability—over the policy limits—and the insurance company put them in that position.
Just a few months later, after we filed a lawsuit, we demanded $500,000 on a $300,000 policy. The insurance company paid because it was the right thing to do for its insured—the Defendant. And they did it because they violated Washington law by taking control over a defense and then wasting an opportunity to settle for policy limits.
Insurance Bad Faith
Even though I mostly represent people injured by the negligence of others, everyone deserves a competent defense. Insurance companies have a duty to affirmatively investigate and negotiate a resolution within policy limits. If they don’t do that, and instead endanger your livelihood, you may have an “insurance bad faith” case.
If an insurer commits “bad faith,” it may have to cover you more than the policy limits, limiting or eliminating your risk of having to pay a judgment yourself. They may have to pay three times the amount of the judgment as punitive damages. And you may have a claim for emotional distress due to the insurance company putting your livelihood at risk.