It happens all the time. People who believe that they are insured against
a certain claim are always surprised when their insurance company points
out their ominous fine print exclusion. For example, one client was sued
for $500,000 resulting from his teenage daughter’s car accident.
He assumed that his auto insurance policy would cover the accident until
his insurance agent notified him that his policy didn’t cover his
daughter because she had moved out of his house to attend college. He
paid over $150,000 to settle. You too have endless ways to get into trouble,
and your insurance won’t always come to your rescue. We repeat:
Buy insurance but don’t rely upon it.
If you are sued and you have liability insurance, keep your insurer on
the hook. Your insurer must defend you in good faith or you can sue them
for any judgment against you above your coverage. Your insurer can have
liability for excessive awards unless it notifies you of the excess claim
and settles or attempts to settle the claim in good faith within the policy
limits. Your insurer can’t refuse a reasonable settlement which
exposes you to liability above your insurance. Insurance companies decline
claims coverage, but if you question your coverage, demand that your insurance
company defend and indemnify you. Your insurer may then defend the claim
and reserve the right not to pay any award, or your insurer may litigate
its liability under your policy. If you have potential exposure beyond
your insurance coverage, hire your own attorney to protect you against
an excessive award.
A similar problem with liability insurance is that you lose control over
your case. Your insurance company decides whether to settle, and for how
much. Perhaps this is unimportant with an automobile accident, but it
can be enormously important to you if the lawsuit involves your professional
competence or impacts upon your personal reputation.
For example, a doctor may be convinced that he is in the right and wants
his day in court. However, his insurance company may consider it cheaper
to settle. Or you may want to quickly settle your case to avoid adverse
publicity while your insurer insists that your case goes to trial. You
and your insurer can have different agendas. If you force your insurance
company to resolve your case as you want, you can forfeit the insurance
protection for which you paid hefty premiums. And once you are sued, your
premiums will rise. With multiple lawsuits over your lifetime –
win or lose – your insurance premiums will increase. One physician
relied on her malpractice insurance for years until her insurance company
defended her on four lawsuits. They hiked her premiums to $250,000 a year.
She pays more for her insurance than she would likely pay on any one lawsuit.
This isn’t unusual.