Liability Insurance Bad Faith Lawyer Los Angeles
Liability insurance is meant to protect against the legal claims of others against the insured. It is often called “third-party insurance” because it insures against claims brought by parties other than the insurer or the insured. Liability coverage is included in a wide range of insurance policies. Often, these policies also provide other types of first-party coverage, including homeowners and automobile policies. Liability coverage is also included in most business insurance policies, including contractor’s insurance and homeowners associations (HOAs)’ insurance.
Most people give little thought to their liability insurance until they are sued. The insured makes a liability insurance claim only after another person or business makes a claim for money damages against the insured. Examples of liability insurance claims include:
- A lawsuit against the insured for injury to another person resulting from an automobile accident;
- A lawsuit against the insured for a slip-and-fall injury that occurred on the insured’s property;
- A lawsuit against a homeowners association for property damage to individual homes caused by the HOA’s negligence; and
- A lawsuit against a physician or lawyer for professional negligence.
Liability insurers frequently try to limit their financial exposure. Unfortunately, their self-interested actions often harm the insured. They sometimes refuse to cover legal claims against their insureds on the ground that the legal claims are excluded from coverage under the policy. They may also control the defense of the lawsuit against the insured in such a way that the insured becomes unreasonably exposed to the risk of financial ruin. When this happens, you may need to consult a Los Angeles liability insurance bad faith attorney.
At The Kristy Law Firm, we aggressively yet ethically fight for the rights of liability insurance policyholders. We fight with true grit to hold insurers responsible when they deny the full benefits to which their policyholders are entitled.
We offer a free evaluation of your case. We represent insurance policyholders on a contingency-fee basis, which means that our clients owe us nothing unless and until we recover money for them. If you believe your liability insurance claim was handled unfairly, call us today for a free evaluation of your case. Or, fill out the contact form for a free evaluation. Thank you, we look forward to discussing your case with you.
Liability Insurance Bad Faith Attorney in Los Angeles
A liability insurer owes two basic duties to the insured under the insurance policy. First, the insurer owes a duty to defend against a lawsuit brought against the insured. Second, the insurer owes a duty to indemnify – i.e., pay damages on behalf of – the insured.
Typically, liability insurance limits are relatively high. It is not unusual for a homeowner or small business to have liability insurance limits of at least one million dollars. But these high limits serve a very important purpose: to prevent a claimant from financially ruining the insured. Without liability insurance, a person sued for negligence might lose his or her home or business.
Like other types of insurance, liability insurance policies usually contain a large number of coverage “exclusions” – types of liability claims that are excluded from coverage. Insurance companies exert themselves to find reasons to deny liability claims. When they cannot justify denying a claim outright, they often send the insured a “reservation of rights” letter. This is to notify the insured that while the insurer may currently be paying for lawyers to defend the lawsuit against the insured, the insurer reserves the right to cancel that defense if it concludes that the underlying event that gave rise to the lawsuit is not covered under the policy.
Liability insurers frequently issue a “reservation of rights” notice after they are informed of the lawsuit against their insureds. These notices cause the insured to worry that there ultimately may be no coverage – either defense or indemnity – for the lawsuit against her. Moreover, a reservation of rights may create a conflict of interest for the attorney chosen by the insurer to defend the lawsuit against the insured (more about this later).
A conflict of interest arises when a defense attorney has two masters whose interests conflict: the insurance company that hired him and the insured person he is defending. In a perfect world, the interests of insured and insurer coincide. Both have an interest in limiting the financial fallout from the lawsuit. Furthermore, the insurance company should have an interest in ending the lawsuit as quickly as possible in order to limit the amount it must spend to defend the case. Thus, ordinarily the insurer should have an interest in a quick settlement of the lawsuit.
Unfortunately, liability insurers often behave as though they are gambling with the insured’s policy limits. Liability policies generally give the insurance company the right to control the defense. While defending the lawsuit against the insured, the insurer is constantly assessing its own risks: How much money will it have to spend to continue defending the lawsuit? How much money might the insurer have to pay if the case goes to trial and the jury awards money to the plaintiff (the party suing the insured)? And how does the amount of a trial judgment against the insured compare to the limits of the liability policy?
These concerns are always foremost in an insurer’s considerations when defending a lawsuit against the insured. Insurers sometimes behave as though they do not care that they ultimately may be forced to pay their policy limit at trial. They reason that by going to trial they may intimidate the plaintiff who sued their insured into giving up on the case and settling just before trial. Or they may reason that even if they are forced to pay their policy limit, it would “send a signal” to other potential plaintiffs that the insurer will force them to endure a costly trial battle before the insurer can be forced to pay the plaintiff’s damages with its own money.
The problem with this sort of reasoning is that it exposes the insured to risk of financial loss – the very thing the liability policy was meant to protect against. At trial, the insurer takes the position that the most it will pay is the limit of the liability policy. Let’s say this limit is one million dollars. Of course, the insurer does not want to part with any portion of the one million dollars. Nevertheless, it may decide that the possibility of a defense verdict (in which case it will pay no indemnity) justifies the risk of paying its policy limit.
Evidence of the defendant’s liability insurance policy may not be introduced at trial. Therefore, the jury will not feel restricted by any liability insurance limit. It may award, say, $10 million against the defendant – ten times the limit of his liability policy! The insurance company will say that it did the best it could, and never expected the jury to award such a high amount. The insurer will pay only its own policy limit of one million dollars, leaving the insured to pay the remaining $9 million dollars of the judgment. In this situation, the insured may lose all of his money and personal and real property in paying the balance of the judgment, after being dragged through a lawsuit and trial that lasted well over a year. Such an insured will wonder what the benefit was of buying a liability insurance policy.
Under California law, an insurer has the duty to settle the case within its own policy limits, if possible, when there is a substantial risk of a jury verdict in excess of the policy limits. Furthermore, an insurer must be sensitive to the possibility of a conflict of interest in the defense of the case. A conflict of interest arises whenever the defense attorney has a choice of how to conduct the defense of the case, and the choice he makes may work to the benefit of the insurance company and to the detriment of the insured. When a liability insurer ignores its duties toward the insured, such that the insured is forced to pay the cost of defense or indemnity, that insurer may later be held liable for insurance bad faith. If the insured is successful in a bad-faith lawsuit against the insurer, the insurer may be forced to compensate the insured for the insurance benefits he should have received.
Often, the insured is unaware – until, in the underlying lawsuit, it is too late – of even the potential for a conflict of interest. Insurance companies and the defense attorneys they hire are often reluctant to admit that the interests of his two clients – the insurer and insured – may conflict. This reluctance arises from the insurer’s wish to control the defense to its advantage and from the defense attorney’s wish to please the insurer, thus increasing the chances of being hired again in the future by the same insurer.
A defense attorney’s conflict of interest may arise even earlier in the case, and in a subtle way. Assume that the plaintiff in the underlying lawsuit has sued the insured for several different legal claims. Some of these claims are covered under the liability policy, and some are not. The defense attorney may face a choice in how he defends against these several different legal claims.
Under one course of action, the non-covered claims are more likely to remain alive in the lawsuit, and may result in damages at trial. This same course of action may make the covered claims more likely to be dismissed from the case. If the defense attorney pursues this course of action, the insurer will be more likely to pull out of the defense of the case on the ground that the underlying lawsuit is not covered under the policy. This course of action is more likely to serve the insurer’s interests: if it pulls out of the case, it will avoid the cost of defending the case and of paying any of its insured’s damages.
Under the defense attorney’s second course of action, the covered and uncovered claims are likely to be treated more equally. As a consequence, the insurer will have more incentive to settle the entire lawsuit to avoid the risk of a trial judgment. Obviously, this outcome favors the insured, who would then be absolved of any responsibility for paying damages. At the same time, the insurer is likely to spend more in defense and indemnity than under the first course of action.
Conflicts like these occur more often than are admitted by insurers and defense attorneys. The latter must hold the insured’s interests at least equal to those of the insurer. If the defense attorney recognizes a conflict, she must disclose it to the insurer and the insured. In this situation, the insured is normally entitled to separate, independent counsel – paid for by the insurer – who is nevertheless charged with protecting only the rights of the insured. Independent counsel can provide significantly greater protection of the insured’s interests. Unfortunately, conflicts between the interests of the insurer and the insured are too seldom disclosed.
If you believe your liability insurer is mishandling your claim in any way, seek legal advice from our Los Angeles insurance bad faith attorneys immediately.