Anatomy of a Personal Injury Claim: A Peek at How It Works in a Real Auto Accident Case
Stephanie did not remember the impact. All she remembered was headlights coming into her lane and then waking up in the hospital. Later she learned from her boyfriend that the other driver wasn't paying attention; as the other driver tried to answer her phone, she veered into Stephanie's lane and hit her head-on. Stephanie's car was totaled.
Stephanie's knees slammed into the dash during the wreck. As a result, she had two surgeries on her left knee to repair the torn tendons and damaged cartilage. Her medical bills for the two surgeries and all the related charges were almost $100,000. Her medical treatment, including surgery, rehab and doctor visits, caused her to be out of work for nearly a month in total. Stephanie was young – only 28 years old – and worried about the bills and how all this would affect her in the future.
Insurance Company Makes a Low-ball Offer
One day, after therapy, Stephanie got a call from a lady with an insurance company for the other driver. She was very nice to Stephanie and told her that they might be able to “cover most of her medical bills.” Stephanie was already concerned about the cost of medical bills, recovery and missed work. The offer the insurance company made seemed really low and only added to her worry. Not knowing what to do next, Stephanie hung up and started looking for a lawyer to help her. After talking to some family members and friends about which lawyer to choose, she called our office and came in to talk with me about the wreck and the discussion with the insurance company representative.
Unfortunately, much of what Stephanie went through is far too common. Even in clear liability wrecks – where another driver is obviously at fault for the wreck - insurance companies often try to low-ball injured people in an effort to get them to accept settlements that are far too low. I really liked Stephanie and her dad immediately. They were good folks who just wanted the insurance companies to be fair with her, and treat her like she was not just a number in a computer somewhere.
Lawyer is Hired and Insurance is Identified
Stephanie became our client, and we immediately went to work for her.
Right away we obtained documents we knew we needed to get maximum compensation for Stephanie. Such documents included the wreck report, employment information, and her medical records and bills. We also spoke to a witness and got photos of the scene and the vehicles.
We then obtained insurance information. In this particular case, there were two types of insurance that would apply to Stephanie's case. The first was the insurance for the other driver, who was driving her mom's car on her way to her friend's house. This is called liability insurance, and it applies to wrecks that are your fault. In this case, that amount of insurance was $100,000.
But there was another type of insurance in this particular case too. This was the insurance on Stephanie's policy with her dad. This is called Underinsured Motorist Coverage (UM), and in this case the amount they had purchased was $100,000 of what is called “added-on” UM coverage. This means that the UM is added to the liability coverage, so in Stephanie's case we had $200,000 total in available insurance coverage. UM coverage is coverage that is meant to cover your losses when the other party doesn't have enough liability insurance.
I told Stephanie that these cases often go one of two ways; Either the insurance companies are reasonable and pay something fair to settle the case without a lawsuit, or they make every effort to delay and continue to low-ball us and force us to file a lawsuit.
In her case, the insurance companies tried the delay and the low-ball tactic. Despite her nearly $100,000 in medical bills, the liability insurance company offered only about $40,000. It appeared as though we were headed toward filing a lawsuit.
The Nature of Liability Insurance and the Company's Obligations
Of course, the obvious question is why? Why would the insurance company do such a thing? To understand just how serious this is, we must take a short detour into the basics of liability insurance.
Liability insurance is intended to protect you when you cause harm to someone else because you can be sued for that harm. The insurance company is basically saying – “in return for your premiums, we will protect you and try to reasonably settle claims so that you don't have to face a lawsuit and financial devastation.”
For example, let's suppose here we offered to take the $100,000 policy limits that were available, but the insurance company declined to take that offer. Also assume that we then went to trial where we recovered a $1,000,000 verdict from the at-fault driver. As a result, the insurance company would have to pay us the $100,000 liability limits and their insured would owe us the $900,000 balance. This is an example of how an insurance company can expose its insured to a gigantic financial hardship - by not settling a case at or below the liability policy limits when it has a fair opportunity to do so.
So now you can see why the insurance company's refusal to accept an offer of $100,000 to settle the case would be so serious. It would put its own insured at huge risk.
Bad Faith Demand and Settlement
Getting back to Stephanie's case, because the liability insurer offered so little, we had no choice but to file a lawsuit. We filed the lawsuit and sent a special kind of demand (also called an offer) for settlement to the insurance companies involved. By this point, the case was being handled by two lawyers against us.
Our demand put the liability insurance company in a spot where it had to make a decision. Would it continue to refuse to pay the liability limits to save itself money? Or would it pay the limits, and settle the case against its insured, thereby protecting its insured from a verdict that could be huge and financially devastating? If it refused to settle and we went to trial and got $500,000, then the insurance company might later be found to have acted in bad faith and have to pay the full $500,000 rather than only the $100,000.
Thankfully, the story has a happy ending after its rough start. The lawyers on the other side of the case were reasonable and we were able to settle the case for the $200,000 of total available insurance coverage. We did not have to pursue a “bad faith” case against the insurance company.
Deciding when to accept a settlement offer and when to file a lawsuit can sometimes be an easy decision but is often difficult. It depends in part on whether a settlement offer fully compensates a person for their injuries compared to the likelihood of fully recovering the total amount of a jury verdict. Ultimately, it is up to the client to decide if they want to accept a settlement offer. In Stephanie's case, the $200,000 settlement covered her medical expenses, lost wages and pain and suffering so it wasn't in her best interest to risk going to trial where she might be awarded a lesser amount.
Stephanie's patience paid off and she obtained the full amounts of available insurance – both the liability coverage and the UM coverage.