When an auto insurance company acts in bad faith, the financial consequences for the insurer can extend far beyond the limits of the policy. In some cases, a bad faith action can lead to an excess verdict, where the insurer is held liable for an amount that exceeds the original policy limits. This process, commonly referred to as “busting the policy”, occurs when the insurance company’s failure to act in good faith causes significant harm to its policyholder, often leaving them personally exposed to large financial judgments.
At Collins & Collins, P.C., we have seen firsthand how insurance companies’ bad faith tactics can result in excess verdicts that go well beyond policy limits. In this article, we’ll explain what busting the policy means, how bad faith auto insurance practices can lead to excess verdicts, and what you can do if your insurance company has failed to properly protect you.
What Is “Busting the Policy”?
“Busting the policy” refers to a legal situation where an auto insurance company is forced to pay more than the policy limits due to its bad faith actions. Typically, an auto insurance policy sets a limit on the amount the insurer will pay for liability claims. For example, a policy might cover up to $100,000 for bodily injury and $50,000 for property damage. However, when an insurer refuses to settle a claim within these policy limits and a court later finds that the insurer acted in bad faith, the company can be held responsible for the full excess judgment—even if that amount exceeds the policy limits.
How Bad Faith Leads to Excess Verdicts
Bad faith occurs when an insurance company fails to act in the best interests of its policyholder. In the context of auto insurance, this often happens when the insurer:
- Refuses to Settle: The insurance company rejects reasonable settlement offers within the policy limits, even when it is clear that the policyholder is at risk of an adverse judgment that could exceed those limits.
- Delays in Negotiating or Settling: The insurer unnecessarily delays responding to settlement offers or drags out the claims process, increasing the risk that the case will go to trial and result in a larger verdict.
- Inadequate Investigation: The insurance company fails to properly investigate the claim, leading to poor decisions regarding settlement and defense, leaving the policyholder exposed to a significant judgment.
- Ignoring the Policyholder’s Interests: Insurers are required to protect their policyholders from excess judgments. When they prioritize their own financial interests over those of the policyholder by rejecting fair settlement offers, they can be held liable for the excess amount.
Example: How an Excess Verdict Can Bust the Policy
Let’s say a driver with a $50,000 auto insurance policy is involved in an accident that causes $150,000 in damages to another person. The injured party offers to settle for $50,000, which is within the policy limits. However, the insurance company refuses to settle, believing they can avoid paying the full amount. The case goes to trial, and the injured party is awarded a $150,000 verdict.
In this scenario, the insurer should have settled for the $50,000 policy limit to protect its policyholder. Because they acted in bad faith by refusing a reasonable settlement offer, the court may find the insurer responsible for paying the entire $150,000 judgment—$100,000 more than the policy limits. This is an example of busting the policy.
The Legal Basis for Holding Insurers Liable Beyond Policy Limits
Insurers have a fiduciary duty to act in good faith and protect their policyholders from financial exposure. When they refuse to settle within policy limits and a court finds that this refusal was made in bad faith, they can be held liable for the full amount of the judgment. This is based on the legal principle that the insurance company’s bad faith directly caused the policyholder to be exposed to excess liability.
Key Factors That Can Lead to an Excess Verdict
Several factors can increase the likelihood of busting the policy due to an excess verdict in bad faith auto insurance claims:
- Clear Liability: When the policyholder’s liability for the accident is obvious, rejecting settlement offers within policy limits is often seen as unreasonable and can easily lead to an excess verdict.
- Severe Damages: If the damages in the case are significantly higher than the policy limits, the insurer is more likely to be found in bad faith for refusing to settle.
- Reasonable Settlement Offers: If the injured party offers to settle for an amount within policy limits and the insurer refuses, this is often a clear sign of bad faith, especially if the case later results in a large verdict.
- Inadequate Defense: If the insurance company provides a poor defense for the policyholder, such as failing to hire competent legal representation or not investigating the case properly, it increases the risk of an excess verdict.
How Collins & Collins, P.C. Can Help With Auto Insurance Bad Faith
At Collins & Collins, P.C., we are experienced in handling auto insurance bad faith cases, particularly those that result in excess verdicts. If your insurer has exposed you to financial risk by acting in bad faith, we will work to hold them accountable and recover the compensation you deserve. Our team will:
- Thoroughly investigate the insurer’s conduct, including their decision to refuse settlement offers or delay payment.
- Gather evidence to demonstrate that the insurance company acted in bad faith, such as documentation of settlement negotiations, expert testimony, and the insurer’s internal communications.
- Pursue legal action to hold the insurer liable for the excess verdict and ensure they pay beyond the policy limits, covering all damages that should have been settled within those limits.
What to Do if You’re Facing Excess Judgment Due to Bad Faith
If your insurance company has refused to settle within your policy limits and you’re now facing an excess judgment, it’s important to act quickly. Bad faith claims are complex, and insurers have significant legal resources to defend against these accusations. Collins & Collins, P.C. can help level the playing field by providing you with experienced legal representation and aggressively pursuing your claim.
Contact Collins & Collins, P.C. Today
If you believe your auto insurance company has acted in bad faith by refusing to settle within policy limits, leading to an excess judgment, contact Collins & Collins, P.C. today for a free consultation. We will evaluate your case, explain your legal options, and fight to ensure that the insurance company is held accountable for its bad faith actions.