Congrats! You Won a $1M Dollar Verdict! But WHO Pays It?
You often hear commercials on the radio that discuss how law firms routinely get multi-million dollar trial verdicts in car accident, slip-and-fall, and wrongful death cases. (Some of these Law Firms sometimes have very catchy jingles that I may be guilty of singing in the shower)
But who is responsible for paying these gigantic verdicts? Is it the guy in the 1995 Ford Taurus who ran the red light? Is the government responsible for paying these verdicts? Is it the insurance company? Or maybe it's a combination of all of the above?
While the individual person or individual company whose actions caused the injuries is legally responsible for the verdict, it does not mean that they are the ones who actually PAY the money verdict to the injured plaintiff.
So who actually pays the money verdict? (Hint: it's not the driver of the 1995 Ford Taurus) The INSURANCE COMPANIES pay of COURSE!!!!!
At this point, I'm assuming your next question is this: why would the insurance companies agree to pay these HUGE verdicts?
They don't! A court of law forces them to pay.
And the courts usually force insurance companies to pay these verdicts when the court has found that the insurance companies are guilty of bad faith to their insured.
When you purchase liability insurance for your car or purchase insurance for your building/business, and your negligence causes a car accident or causes someone to become injured in your place of business, your insurance company has a contractual duty of good faith to protect you and your assets from any lawsuit brought forth by the injured driver.
More specifically, when you purchase liability insurance for your car, you're obligated to choose how much insurance you'd like to purchase. So for example, if you choose a $100,000 liability bodily injury policy for your car, your insurance companies can pay up to $100,000 to anyone that you injure in a car accident that is your fault. This number is called the policy limit.
HOWEVER...insurance companies can be ordered to pay MORE than the policy limit if a court of law finds that they have acted in bad faith.
The clearest example of insurance bad faith is when someone causes a car accident that leads to another person suffering serious life-altering injuries and the insurance company of the at-fault driver offers to settle the case for significantly less than the policy limit. (Why do insurance companies do this? It's simple: GREED )
Let's go back to the example of the driver of the 1995 Ford Taurus. Let's say that he has a $100,000 bodily injury liability policy on his car insurance. Let's also say that there is video footage of him running a red light, T-boning another driver, and causing the innocent driver to become paralyzed and that the medical records for the innocent driver clearly establish that the accident CAUSED him to become paralyzed. In other words, there is little doubt that the innocent driver's life has been turned upside down BECAUSE of the accident.
If the insurance company for the Ford Taurus driver offers less than the $100,000 policy limit to the innocent driver, the innocent driver then sues the at-fault driver and the innocent driver is subsequently awarded $5 million at the end of a trial, a court of law could find that the insurance company for the at-fault driver has acted in bad faith. In that scenario, the innocent driver will be allowed to open up the policy limit of the at-fault driver's insurance policy and directly sue the insurance company for the entire $5 million verdict! Of course, this is a win-win for both the Ford Taurus driver and for the paralyzed victim. It's a win for the victim because he can go after the insurance company for the entire verdict and it's a win for the Ford Taurus driver because he wont be forced into bankruptcy or lose his assets because of his mistake.
This is a classic example of bad faith because the insurance company should have offered the $100,000 policy limit to the paralyzed victim as soon as they realized that the Ford Taurus driver was at fault and as soon as they realized that the innocent party became paralyzed because of the accident. And by failing to do so, the insurance company failed to protect the Ford Taurus driver from being sued. And because of this failure, the Ford Taurus driver now has a $5 million judgment on his permanent record. This is insurance BAD FAITH.
I bet some of you are wondering whether attorneys ever go after the personal assets of the at-fault driver or the assets of the at-fault company. Yes, that does happen. But personal injury attorneys do not like to choose that route. For example, seizing the at-fault driver's house as a way to collect a big verdict has many limitations. For one, if the at-fault driver still owes a significant amount of money on the mortgage, any forced sale of the house will result in the bank collecting the mortgage before the injured plaintiff is paid and sometimes that leaves the injured plaintiff with very little. And if the house's mortgage debt is more than the value of the house, then you can forget about it. Several states also place caps on how much an injured plaintiff can take from the at-fault driver's house in a personal injury lawsuit.
And of course there is a significant moral dilemma when family members reside in the at-fault driver's house. If you seized his house, you would essentially be making his whole family homeless. As much as the media likes to portray attorneys as greedy monsters, very few personal injury attorneys are comfortable with making that choice.
Sometimes, the at-fault driver may even have an umbrella insurance policy. An umbrella policy is basically extra insurance that a driver can purchase just in case his pre-existing policy limit isn't enough to pay for the damages/injuries he causes to another driver in a car accident.
At other times, if the driver is a government employee, the injured party can sue the government for his damages and if you think insurance companies have a lot of money to pay damages, it pales in comparison to injury award that the government can pay out.
The next time you hear a radio commercial about a law firm obtaining a multi-million dollar settlement, you do not have to worry about the driver of the 1995 Ford Taurus who caused the accident. He's not going to be the one who has to pay the $5 million dollar judgment.
It's usually the insurance company who has to pay. And trust me, you do not need to feel sorry for the insurance company! They are the greedy ones, not the plaintiffs! :)
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