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What are Some Effects of Bad Faith Insurance Claims?

White Collar Crime
Attorney in suit is arrested and handcuffed behind his back for white collar crime.

Boom! The aftermath of a car accident, slip or fall, or another type of injury can have many effects. For example, your vehicle bumper was hit in the rear; you have comprehensive, collision and even uninsured motorist protection.

No matter what, the road to recovery is a long one for the victims of injuries. Both those that were hurt and those that are sued inappropriately fall back on their insurance companies for assistance in this trying time. After all of the years of paying in for increasing premiums, shouldn’t it be time for the insurance companies and their attorneys to assist the insured when needed?

Not so Fast

Unfortunately, as many victims have discovered, many insurance companies try to reduce their risk or out and out deny claims to protect their pocketbook. The company has signed a contract with you to kick in when an event such as an unexpected lawsuit or severe injury occurs. If they are acting in bad faith, then you have every reason to challenge them.

If you believe that your insurance company is just denying you to try and save money or violating the terms of your policy, they may be acting in bad faith. There have been repeated cases where companies attempt to settle for far too little for their clients to avoid other costs. Or they may try to drop the case altogether. When faced with such a problem, the company must be held to account.

In some cases, you may be limited to the UM, or UIM portion since the other party at fault carried only minimum limits. And this is typical in an auto accident case. An example could be that your own Med Pay covered $2000 in medical bills. But your total damages far exceed the available coverages under your own UM/UIM.

So let’s say you got the defendant’s policy limits of $15,000. But let’s pretend your damages are $100,000. Your Underinsured (UIM) coverages are only $25,000. So this means you are entitled to the remaining $10,000 under your UIM. But as stated, “not so fast.” In fact, you may have a terribly rated insurance company such as Robert Moreno Insurance. (See their Google ratings here.).

In that case, they may argue that they are entitled to be reimbursed the $2,000 in med pay from the UIM. So this leaves you with $8,000. That hardly makes you whole, not even close.

Of course, you could emphasize to the adjuster the fact that the policy language does not expressly abrogate the made whole doctrine. And because of this, at a minimum, a full credit of $2,000 should not be permitted.

And this is based upon the common fund doctrine. And that also was not specifically waived within the four corners of the policy. There’s the argument. Good luck!

What is the Common Fund?

The common fund doctrine allows for a reduction in attorney’s fees and pro rata share of costs. That is, the lien claims must be reduced by the same percentage for attorney fees as the client is being charged, and the lien claimant must cut for their proportionate share of the costs incurred by your customer.

Common fund doctrine applies to reduce a carrier’s claim for med pay reimbursement by its pro rata share of plaintiff’s attorney’s fees and costs. (See e.g., Lee v. State Farm 57 Cal.App.3d 458 (1976).)

 In California, this reduction is also reflected in California Civ. Code section 3040(f) which states: A lien subject to subdivision (a) or (b) is subject to pro rata reduction, commensurate with the enrollee’s or insured’s reasonable attorney’s fees and costs, in accordance with the common fund doctrine.

Made Whole Doctrine

If the value of the claim exceeds the amount available per the Underinsured Motorist coverage plus the med pay, then no credit is appropriate. The contract language demonstrates that the insurer has not contracted around certain defenses, such as the “made-whole” or common fund doctrines.

The make whole rule basically states that a lien claimant cannot assert its contractual right to repayment from the insured’s recovery against the third party tortfeasor if the total amount available from the insurance and the third party is insufficient to compensate the full loss suffered by the insured. (See also Sapiano v. Williamsburg National Insurance Company 28 Cal.App.4th 533 (1994).)

In Progressive West Ins. Co. v Yolo County Superior Court, 37 Cal. Rptr. 3d 434 (2005), the court held that in personal injury cases, to preserve its right of subrogation, the med pay insurer must either interplead itself into any action brought by the insured against the third party tortfeasor or wait to seek reimbursement. And this would be under the language of its policy from its insured to the extent that the insured recovers money from the third party. (citing Plut v. Fireman’s Fund Ins. Co., 85 Cal.App.4th 98, 104 (2000); Hodge v. Kirkpatrick Dev., Inc., Cal.App.4th 540,. 548 (2005)). Id at 442.)

 “Thus, when an insurer elects not to participate in the insured’s action against a tortfeasor, the insurer is entitled to subrogation only after the insured has recouped his loss and some or all of his litigation expenses incurred in the action against the tortfeasor.” Id.

Additionally, 21st Century Insurance Co. v. Superior Court (Quintana), 47 Cal.4th 511 (2009), concluded that the made whole rule applies in the med pay insurance context, and the insured must be made whole as to all damages proximately caused by the injury, but liability for attorney fees is not included under the made whole rule. Those fees instead are subject to a separate equitable apportionment rule (or pro rata sharing) that is analogous to the common fund. Id at 515. Thus, attorney’s fees are not taken into account when determining whether your client was made whole, but are taken into account when taking the common fund reduction.

As stated above, there are some policies that specifically waive any rights to argue the make whole doctrine. But to constitute a valid waiver of the make whole doctrine, a “contractual provision that intends to vitiate this rule must ‘clearly and specifically [give] the insurer a priority out of proceeds from the tortfeasor regardless whether the insured was first made whole.'” Progressive West Ins. Co. v Yolo County Superior Court, supra, 37 Cal. Rptr. 3d at 443. If the language does not meet this standard, the make whole doctrine has not been waived and therefore is still applicable.

Even if a policy includes valid language waiving make whole, many insurers will consider the equities of the situation, regardless of whether it is allowed by the policy or not.  The equities in this case warrant no offset for the med pay benefits. Often your own insurance agent has little or no bearing on your case and cannot push the right buttons. Of course, this is just one of many examples of the complexities of a first party claim. You may also with to seek an assignment of rights from the person who caused your injury against their own insurer.

There may be some other case where your own insurer is simply blowing you off, failing to defend, let alone indemnify your claim. You simply are unprepared and untrained to battle your own adjustor, who is trained to make you feel small and insignificant.

Instead, the company needs to be pressured by a legal professional. The large corporations can make even more money by refusing claims that it led the policy holder to believe would be covered.

If you or a loved one is being faced with claim denial, smaller than expected settlement offers, lack of protection against lawsuits. And if there are violations of your policy, you shouldn’t act alone. The big companies’ teams of lawyers are meant to get the little guy to give up and drop their rightful claims.

A legal expert can assist at the right time. Ehline Law has handled the big insurance corporations before and know how to make them pay out the money that they promised you. Let us do the heavy lifting and help you recover.


Michael Ehline - PI Law Tutorials

Michael Ehline is a highly trained personal injury attorney in Los Angeles, CA. He writes educational articles to help injured consumers.

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