When is the last time you saw a plaintiff’s billboard bragging about a $15,000 settlement or verdict? Probably never. In this age of Nuclear Verdicts and runaway juries, the focus is on big flashy verdicts: millions and billions of dollars. While cases with lots of damages at stake and the potential for a big verdict require a lot of attention, the hardest case to defend is sometimes the one with the lowest amount of dollars at play: state minimum-limits policies. Why are these cases so difficult to defend? And what can insurers and outside counsel do to avoid the risks that come with these verdicts?
It is important to define that state minimum policies are automobile insurance policies providing the lowest amount of insurance coverage allowed by law. State motor vehicle financial responsibility laws require that drivers carry auto insurance to operate a vehicle, and the limits are often low: Some states are as low as $15,000 per person for bodily injury. While the concept of minimum limits dates back over 100 years, many of these amounts were set decades ago and do not adjust for inflation. These policies are usually attractive to either low-income or high-risk drivers who cannot afford the higher premiums on policies that provide more robust coverage.
The failure of these policies to keep up with current costs and dollar values is problematic when handling these policies. With current prices, $15,000 can be as little as an emergency room visit and a few follow-ups, plus pain and suffering. Multiple claimants with serious injuries? Good luck. Many of these policies provide only part of the amount needed to fully compensate an injured claimant when fault is clear.
This makes these cases difficult to defend for several reasons:
• First, the amount of coverage is often insufficient to cover a potential jury verdict.
• Second, plaintiff’s attorneys, once aware of the low limits, will try to find assets beyond the limits whenever possible. Because many of these drivers have few or no personal assets that could be used to satisfy a judgment, plaintiff’s attorneys often go after the “deep pocket” insurance company to make up the difference. At times, plaintiff’s attorneys will use any procedural tactic possible to create a bad faith trap for the insurance company in hopes that someone at the insurance company will make a mistake and commit bad faith claims handling.
• Third, because both the financial interests of the insured and the insurer are at stake, there will be inherent conflicts that require the retention of multiple attorneys to evaluate the claim.
Strategies for Success
For insurance companies that sell state minimum-limit policies, the defense of these claims should start when the claim is reported. Insurers should set realistic expectations with all parties from the first notice of loss. Clear communication about who is handling the claim, what is needed from each party, and when it should be provided is a priority. A thorough recorded statement of the insured vetting the facts of loss along with any inconsistencies or potential coverage concerns will aid in setting the direction for the claim. Reaching insureds can often be a tedious task, but utilizing multiple channels of communication and vendor tools such as a TLO can guide the investigation. Maintaining a frequent diary and follow-up schedule often lends to speedier claims handling. The company should move quickly to make a coverage and liability decision.
Outside counsel defending the insureds have an ethical duty to represent the interest of the insured, and that often means working to obtain a resolution that does not jeopardize the personal assets of the insured and that does not involve the insured in drawn-out litigation. There is a duty to resolve claims fairly, and this may mean that not every case is worth the policy limits, even for a state minimum policy. However, if early indications are that the case is worth near or above the policy limits, the defense attorney must protect the interest of the insured.
The first step is to advise the insured of the realities of the low limits and how this will impact the ability to resolve any claim. Second, identify or confirm that the insured does not have significant personal assets or other insurance policies. If they do, advise them of the potential risk to those assets and assist them in reporting the accident to the other insurance policy. Importantly, do not wade into coverage issues: that is an issue for coverage counsel. Finally, seek to learn what the plaintiff’s attorney will want to resolve the case for the policy limits (if appropriate). This may be an affidavit of no other assets or cooperation in making claims on other policies and patience while those other insurers determine if there is coverage.
Counsel for the insurer should act quickly, as state laws often do not allow significant time for tendering limits if there is a lingering conflict. If there are disputes about whether coverage applies, those issues will need to be resolved quickly and a decisive answer reached. If there is any ambiguity, the time constraints may force the insurer to err on the side of providing coverage. If a tender of limits or interpleader action is needed, the decision needs to be made timely. If state law and time allows for a settlement conference or tender via letter, this can also be handled by counsel for the insurer.
There are many more difficulties in defending and insuring stateminimum policy limits. What plaintiff’s attorneys do not always advertise is the collectability of those verdicts, and that a state-minimum policy defended well does not pay out millions of dollars: it pays out the state minimum limits. Plaintiff’s attorneys know that and will generally not push to trial a case that has been handled appropriately. Handle these policies successfully, and you’ll avoid your judgment becoming the next plaintiff’s billboard.
About the Authors:
Phillip Raine is a partner at Chartwell Law. praine@chartwelllaw.com
Andrew Blackwood is claims counsel at Root Insurance. aeb910@yahoo.com