As a general rule, there will be more than one insurance policy that provides coverage in a major accident or incident where victims are seriously injured or killed. These insurance carriers are in the business of protecting their policyholders in the aftermath. They are extremely efficient in their attempts to limit liability and argue all kinds of damage mitigation.
Insurance companies have staffs of professionals who are dedicated to protecting the insured (as well as the shareholders). There are insurance adjusters, staff attorneys, outside counsel, and more. They work hard to limit the amount paid on accident claims, as well as seeking subrogation after cases have been resolved.
However, there are times when the insurance company places its own interests (and that of its stockholders) over that of its insured. And this is where “bad faith” insurance lawsuits come into play.
We’ve discussed insurer bad faith before. See, “The Law of Bad Faith Insurance Claims in Indiana and Illinois.” And we have, on occasion, helped in bringing bad faith insurance carriers to justice.
Duty to Settle under State Law Mandate
Bad faith can happen in several ways. However, one of the big issues in bad faith insurance claims in Indiana and Illinois boils down to a simple scenario: the insurance company fails in its legally defined duty to settle the claim.
As explained by the American Bar Association in its March 2017 CLE publication “When Insurer And Insured Differ On Whether To Settle: Bad Faith Implications,“ state courts have established case precedent placing legal duties upon insurance companies to settle claims in certain circumstances.
Here in Indiana and Illinois, there established court precedents mandating insurance companies have a duty to settle in certain circumstances. If they fail to do so, then they have breached a duty defined by law and may well owe financial damages as a result.
Illinois Duty to Settle Insurance Claim
The Illinois Supreme Court has defined the insurer’s duty to settle a claim made against the insured when (a) there is a reasonable probability of recovery in excess of policy limits; and (b) there is a reasonable probability of a finding of liability against the insured. Haddick Ex Rel. Griffith v. Valor Insurance, 763 N.E.2d 299, 198 Ill. 2d 409, 261 Ill. Dec. 329 (2001).
In other words, if the plaintiff’s case is reasonably likely to find the insured legally liable for his injuries and it’s reasonable to believe that the award for his damages will be more than the policy limits, then the insurer has a legal duty to try and settle the case.
If the insurance company refuses to settle, then it may be liable for the full amount of the judgment against the policyholder. The limits on the policy will not shield the company from this exposure.
Once the accident victim demands a settlement within policy limits, then the insurance company’s duty under Illinois law kicks in. If the insurer fails to settle, then the company may be liable for the full amount of the judgment against the policyholder regardless of policy limits.
In Illinois, the courts understand that the company has a legitimate interest in looking after its shareholders. However, because of the kind of business it operates, that company must also give “at least equal consideration” to its insured. Failure to do so constitutes “bad faith” in Illinois.
Indiana Duty to Settle Insurance Claim
The Hoosier State has also mandated that insurance companies have a legal duty to settle claims. In Indiana, the insurer commits bad faith when it refuses to settle within policy limits and it (a) has exclusive control of defending and settling the suit; and (b) refuses to do so. Bennett v. Slater, 289 N.E.2d 144, 154 Ind. App. 67 (Ct. App. 1972).
The insurance company who violates this duty of acting with due care and good faith in the resolution of the accident claim becomes liable to its insured for any resulting judgment exceeding the policy limits.
From the perspective of the State of Indiana, the insurer should consider the financial exposure of its policyholder to any potential injury award as part of the settlement process.
That’s because the policyholder is the defendant in the lawsuit, and if a judgment is rendered after a jury verdict, it is that individual who will be legally responsible for paying that judgment to the accident victim in the personal injury lawsuit. Not the insurance company: the insurer is not a party to the case.
Lawsuits for Bad Faith Refusal to Settle
Insurance companies become defendants named in the lawsuit when claims or causes of action are brought against them. In a bad faith case, the claim will be the company’s breach of its duty to settle the case.
The carrier will be a defendant that can be found liable for damages and ordered to pay an award to the plaintiff. In bad faith insurance company cases, this may include punitive damages.
In most accident cases, particularly those involving serious injuries and permanent harm, or even wrongful death, the insurance companies will not only be aware of their legal duties to settle the claims, but they will be open to settlement negotiations and resolution of the claims.
Bad faith refusals to settle are the exception, not the rule. However, this type of thing does happen here in Indiana and Illinois. Parties involved in accident claims and injury litigation should know about the insurance company’s duties here. Be careful out there!
