Insurance companies which enter into contracts of insurance with their customers have a very long list of responsibilities which they owed to their insured customer. Many of these obligations are contained in the actual contract which is the policy of insurance. Some of the obligations relate to various types of coverage and ultimately include what is known as the duty to defend.
Does the attorney hired by my insurance company have a conflict?
When you purchase a policy of insurance, you are contracting for the insurance company to pay claims to third parties who are injured by your actions or omissions within the scope of the policy. The duty to defend means that when you are involved in a loss or covered event and you are alleged in civil court to be the at-fault party, your insurance policy provides and pays for your lawyer.
Even though this lawyer is paid for by the insurance company, there is an attorney client relationship with you. The dynamic lends itself to a certain concern that the lawyer who represents you in this case is taking direction and strategizing with your insurance company.
What is the duty of good faith?
As a result of this inherent tension between who is the client and who is paying for the representation, the courts have come to find that an insurance company has a duty of good faith and fair dealing when it comes to the handling of the claim. Good faith really means that the insurance company is more concerned about its insured than its own economic interests.
The insurance policy has what is known as ‘policy limits’. It is the maximum amount the insurance company is contractually bound to pay out in a case where the insured is proven to be at fault. If a case goes to a trial because the parties could not agree to a settlement at mediation or prior to trial, a jury verdict will be rendered. The insurance company will only pay ‘policy limits’.
If the jury comes back for an amount above policy limits, the insured is responsible for it. If the insured cannot pay it, the insurance company will pay their limits and exit the case, having fulfilled their contractual obligation. The plaintiff will get a civil judgment against the insured for the unpaid amount and try to collect it.
Bad faith is usually related to an unreasonable refusal by the insurance company to settle
During the case, there may have been an opportunity, during settlement negotiations or at mediation for the insurance company to have settled the claim within those policy limits but didn’t because of some poor strategy or negotiating ploy that failed. The obligation of good faith which exists between the insurer and the insured requires the insurance company to act in your best interest and if there is a reasonable opportunity to settle the claim within policy limits, they must have acted reasonable and with your best interests in mind.
Where the insured can show that the insurance company failed to act in the insured’s best interest but instead acted solely in their own best interests, the Company may be responsible in damages for that act of bad faith.
Very frequently, where the case goes to the jury and results in a verdict beyond coverage, the insurance company may be forced to pay the surplus amount if a court finds that they acted in bad faith. Sometimes, the at-fault defendant will transfer and assign the bad faith claim against the insurance company to the plaintiff and by agreement, absolve their liability for the surplus judgment. This would allow the original accident victim to pursue the bad faith claim against you insurance company.
Is it a good idea to hire private counsel?
Many individuals who find themselves alleged to have caused the injury, hire private counsel to make sure their rights are being properly protected. Given the complicated relationship between the insurance company and the lawyer designated and furnished to you through your insurance policy, hiring private counsel seems prudent.
Private Counsel can monitor the progress of settling the case and influence the insurance company’s counsel to make sure they act in the insured’s best interests in settling the case within policy limits.
Selection of a Lawyer for a Bad Faith Claim
Claims for bad faith arise from cases involving negligence, civil trial law, products liability and in most claims where there is a policy of insurance in effect where counsel is being provided as an incident to the policy of insurance. Lawyers who focus in representing parties in bad faith claims are primarily civil trial or personal injury lawyers.