Attorney David J. King


Inappropriate settlements could be a form of bad faith insurance

On Behalf of | Dec 6, 2022 | Insurance Bad Faith

When a car crash is severe enough to put you in the hospital or totally wreck your vehicle, motor vehicle insurance coverage may be the only thing standing between you and total financial devastation. The driver who hit you should provide you with coverage that will pay for hospital bills, lost wages and vehicle damage expenses. Unfortunately, what insurance should cover and what it will pay are often drastically different.

There are limits to the coverage on any policy, and insurance companies often try to avoid paying the maximum amount possible after a wreck. Insurance companies may offer you a settlement which seems generous at first. However, it turns out to be far less than what the crash actually costs you. In such a scenario, you may not have many options, but you can sometimes take action against the insurance company if a settlement offer was made in bad faith.

Bad faith insurance claims can lead to more appropriate compensation from the insurance company and possibly even punitive damages. When is a settlement likely an example of bad faith insurance practices?

When it is well below the policy limit

Insurance companies want to reduce how much they pay, as higher settlements eat into the company’s profit margin. However, settlements should reflect what a collision will likely cost someone and the amount of coverage on a policy.

If an insurance company pressures a claimant into accepting a fraction of what the policy limits could cover, that person may have grounds for a bad faith insurance claim later if the expenses far exceed the settlement.

When the crash costs are obviously going to be high

Insurance professionals have handled enough claims that they understand what it costs to treat a traumatic brain injury or a spiral fracture of the femur. When they propose a settlement that falls far below what the injury will cost, they may hope that the person filing the claim doesn’t recognize the gap between the settlement offer and their likely true expenses.

Settlements are a way for insurance companies to pay quickly while reducing their total losses, but a settlement used to deprive someone of appropriate coverage could actually be a form of bad faith insurance that leads to a lawsuit.

Learning more about the obligations that insurance companies have to policyholders and claimants can help those left without appropriate compensation due to bad faith insurance practices.