Auto Insurance: Personal Liability And Lawsuits

If you have auto insurance and are being sued personally, your insurance company will usually provide a lawyer to help defend your case. This is known as the insurance company's duty to defend and is normally included in the language of any kind of liability insurance policy. However, it's important to note that there may be exceptions to this obligation, and certain circumstances may allow the insurance company to void its obligation to defend the policyholder. For example, if the policyholder intentionally caused the accident or failed to report it within the specified time frame, the insurance company may not be obligated to provide a lawyer. In such cases, you may need to hire your own attorney to protect your assets if you are being sued following a car accident.

Insurance companies acting in bad faith

When you buy insurance, you expect your insurance company to be there for you when you need them. Unfortunately, this is not always the case. Insurance companies sometimes act in bad faith, prioritising their profits over their duty of good faith and fair dealing to their clients.

Bad faith insurance refers to an insurer's attempt to renege on its obligations to its clients, either by refusing to pay a policyholder's legitimate claim or by failing to investigate and process a claim within a reasonable period. Insurance companies may also act in bad faith by misrepresenting an insurance contract's language to the policyholder, failing to disclose policy limitations and exclusions, or making unreasonable demands on the policyholder to prove a covered loss.

• Outright denial of a legitimate claim
• Long delays in payment or investigation
• Unreasonable demands for proof of loss
• Offering substantially less than what the policyholder is owed
• Failing to conduct a thorough investigation
• Not paying the full value of a covered loss

If you believe your insurance company is acting in bad faith, you should first notify the adjuster in writing. Most insurance companies would prefer to resolve the issue directly rather than risk a bad faith lawsuit. If that doesn't work, you can consult a lawyer, especially one specialising in insurance law. They will be able to advise you on the best course of action and represent you in legal proceedings if necessary.

In the United States, state laws called unfair claims practices acts have been enacted to protect consumers from insurance companies acting in bad faith. These laws can require insurance companies acting in bad faith to pay damages beyond the amount owed under the claim, including compensation for out-of-pocket expenses, missed work, attorney's fees, and punitive damages.

Intentional acts causing an accident

It is important to understand that your auto insurance policy provides coverage for certain liabilities arising from a car accident. However, there are situations where you can be held personally liable, and the protection offered by your insurance policy may not be sufficient. One such scenario is when you intentionally cause an accident. In these cases, the law may allow the injured party to pursue a claim directly against you as an individual, bypassing the limits of your insurance policy.

Intentional acts that could lead to personal liability in a car accident scenario include road rage, deliberate distraction of other drivers, or any action that is deemed to be willful and malicious. For example, if you were to cut off another driver out of anger and they collided with your vehicle, the other driver could argue that your actions were intentional and meant to cause harm. In this case, they could seek compensation from you personally, beyond the limits of your auto insurance policy. Similarly, if you were to throw an object at another vehicle with the intention of causing damage or distraction, and an accident occurred as a result, you could be held personally liable for any injuries or damages that arise.

Another example of an intentional act is driving under the influence of drugs or alcohol. While this may not always be considered a deliberate act to cause harm, it can be argued that you were aware of the potential consequences and chose to drive regardless. In this scenario, if you cause an accident that results in injuries or property damage, the affected individuals may have grounds to sue you personally. The court may view your actions as reckless and intentional, which could result in significant personal liability.

It's important to remember that each state has its own laws and precedents regarding personal liability in car accidents. Some states may have specific statutes that address intentional acts, while others may rely more on case law and judicial interpretation. Regardless, if you are involved in an accident where your intentional actions are a factor, it is highly advisable to consult with a legal professional. An attorney can review the specific circumstances of your case and advise you on the potential exposure to personal liability beyond the coverage provided by your auto insurance policy.

Damages exceeding policy limits

If you are being sued personally following a car accident, your insurance company should be able to provide you with a lawyer to help defend your case. This falls under the insurance company's "duty to defend," which is normally included in the language of any kind of liability insurance policy. However, it's important to note that there are exceptions to this obligation.

One such exception is when the damages paid out by the insurance company meet the policy's coverage limits. Generally speaking, once the insurer has met its contractual obligations, it has no further duty to the insured. In other words, the insurance company would not be obligated to pay further claims and would not be required to provide legal representation.

For example, if your auto insurance policy covers up to $25,000 in liability coverage, but you are found to be at fault for an accident that caused serious injuries to the other driver that cost more than $25,000 to treat, the insurance company would try to settle for an amount within your policy coverage. However, if the injured party does not agree to the settlement, the insurance company may pay them the policy limit of $25,000 without settling the case. In this scenario, the injured party could sue you for the remainder of the damages (excluding the $25,000 already received from the insurance company). If the injured party does choose to sue you, the insurance company would be under no legal obligation to provide you with a lawyer as it has already fulfilled its contractual obligations.

If you find yourself in this situation, you can consult a civil litigation attorney to guide you through the process and help protect your assets. While it can be challenging to collect personal injury damages beyond the limits of the at-fault party's insurance coverage, there are a few options to consider:

• Collecting from the defendant personally: You can try to collect additional compensation directly from the defendant. However, this can be difficult if the defendant does not have sufficient cash or assets to pay.
• Umbrella insurance policy: Some individuals or businesses have an umbrella policy that provides additional coverage beyond the limits of their primary insurance policy. This type of policy may be applicable in certain situations, such as a truck accident where the trucking company holds an umbrella policy.
• Suing additional defendants: If there are multiple defendants in an accident, you can sue each of them. In cases of joint and several liability, you can collect up to the policy limit from each defendant.
• Insurance company acting in bad faith: In rare cases, if an insurance company refuses to settle a claim within policy limits in bad faith, they may be held liable for the entire damage award.

No notice/claim of accident

If you are involved in a car accident, it is important to promptly report it to your insurance company and the local police department. Failure to notify your insurance company about the accident can have consequences for any claim you make regarding the accident.

As a policyholder, you are obliged to report car accidents to your insurance company within a certain time frame, which is usually outlined in your individual policy. If you do not meet this obligation, your insurance company may no longer be under a "duty to defend" you. This means that they may be legally discharged from providing coverage for the accident, including the provision of a lawyer to defend your case.

In some cases, the window for reporting an accident can be as short as 5 to 10 days. However, if you are physically or mentally incapable of notifying the insurance company within this time frame, your failure to report may be excused due to extenuating circumstances.

To ensure that you meet the reporting requirements, it is important to read your insurance policy carefully and understand when notice is required. If you have any questions or concerns, it is recommended to contact your insurance company or seek legal advice from a qualified attorney.

Umbrella policies

If you are being sued personally and are concerned about costs beyond your auto insurance policy, an umbrella policy could be an option to consider. Umbrella insurance is extra insurance that provides protection beyond the existing limits and coverages of other policies, such as auto insurance. It provides an additional layer of security to those who are at risk of being sued for damages to other people's property or injuries caused to others in an accident.

Umbrella insurance can also cover claims that may be excluded by other liability policies, including false arrest, libel, slander, defamation of character, invasion of privacy, and liability coverage on rental units you own. It can also cover legal defence costs, such as attorney fees and other charges associated with lawsuits.

Umbrella insurance is particularly useful for high-net-worth individuals with significant assets who are at risk of being sued. It is also a good option for those who possess potentially hazardous items, such as swimming pools, trampolines, or dogs, or those who engage in activities that could increase their risk of being sued, such as coaching kids' sports, serving on the board of a nonprofit, or regularly posting reviews of products and businesses.

The cost of an umbrella policy depends on factors such as the amount of coverage, location, the number and types of vehicles owned, and whether multiple houses are owned. It is typically very affordable and can provide peace of mind and protection for your assets.

Frequently asked questions