Jane Dotson
Auto insurance companies will often attempt to settle injury claims outside of court, as lawsuits are lengthy and expensive. Settlements are faster, less risky, and less expensive than court battles, and insurance companies want to minimise costs and manage risk. However, quick settlements may result in claimants receiving less than their claim is worth, as they may not yet know the full extent of their injuries or the long-term impact on their lives. It is therefore advisable to consult a lawyer before accepting a quick settlement offer.
| Characteristics | Values |
|---|---|
| Why auto insurance companies settle for injury claims | Settlements are faster, less risky, and less expensive than court battles. Settlements are a sure thing, while trials are unpredictable for both parties. If the injured party goes to trial and loses, they get nothing. |
| How does an insurance company decide to offer a settlement? | Insurance companies are all about minimizing costs and managing risk. They will do everything they can to settle the claim before it gets to court and avoid putting the case in the hands of an unpredictable jury. |
| What does the settlement cover? | The settlement covers "physical injuries or physical sickness". It also includes compensation for pain and suffering, emotional distress, and other less tangible damages. |
| Are there taxes on the settlement money? | If the settlement covers "physical injuries or physical sickness", then it will not be taxable as income, as long as the injured party didn't previously claim any "medical expense" deductions related to that same injury or illness. Portions of the settlement meant to compensate for pain and suffering, interest payments, and punitive damages are taxable. |
| How much is the settlement worth? | The settlement amount depends on several factors, including the severity of the injuries, the amount of medical expenses, the impact on the injured party's ability to work, any pain and suffering, and the level of fault of each party involved in the accident. |
What You'll Learn
Insurance companies prefer settlements to court cases
Insurance companies are always looking to minimise their costs and manage their risk. Settlements are often faster, less risky, and less expensive than court battles. Trials can be costly, even if the insurer wins, as they will still have to pay their lawyers. Going to court can also lead to an insurer having to pay a large award to the plaintiff.
Settlements are also more predictable than court cases. Trials can go either way, and if the insurance company loses, they may have to pay out much more than they would have through a settlement. Settlements are a sure thing, whereas trials are unpredictable.
Taking a claim to court can also lead to bad publicity for the insurance company and the company they represent. Settling a claim out of court is usually a quiet affair, with little publicity.
However, there are times when an insurance company may decide to push a case to court. For example, if the victim asks for a large amount of financial compensation, the insurance company may fight harder to minimise the amount they have to pay.
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Settlements are faster, less risky, and less expensive
Settlements are often faster, less risky, and less expensive than court battles. They are a sure thing, while trials are unpredictable for both parties. If you go to trial and lose, you get nothing.
Insurance companies want to spend as little time and money as possible on each personal injury claim, and quick settlements help them achieve this goal. However, quick settlements are usually unfair for accident victims because the value of most accident claims is much higher than the insurance company’s first offer.
Settling out of court can also save both parties money. Typically, the injured person (the plaintiff) in a personal injury lawsuit will have a contingency fee arrangement with their attorney. The most common arrangement is that the attorney will receive around 33 percent of any pre-trial settlement and about 40 percent of any amount received after the trial begins.
The trial and appeals process can also take years. A trial will often not commence until more than a year after the initial lawsuit is filed. Even after one of the parties wins at trial, the other party can prolong the uncertainty by appealing the outcome. Even with a relatively simple personal injury case, it is not uncommon for the entire process to take three or four years, sometimes significantly longer. With a settlement, on the other hand, the parties know exactly how much money will exchange hands, and both can put the matter behind them after the settlement agreement is signed.
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Settlements are a sure thing, while trials are unpredictable
Firstly, going to court can be expensive for insurance companies. Taking a case to court can substantially increase the overall legal fees associated with a case, and there is no guarantee that the compensation they have to pay out will be significantly lower. In fact, a judge or jury may award the plaintiff compensation far beyond what they would have received through a settlement. Therefore, in the long run, insurance companies may find it easier and more cost-effective to agree to a settlement, even if it is higher than they would have liked, than take a claim to court.
Secondly, settling out of court is usually faster than going to court. If you need to go to court over your claim, you may have to set a mediation date, wait for a court date, and then present your case in court. This can take a long time, especially if the court system is experiencing delays. As a result, you may struggle to manage your expenses related to the accident, and your recovery may be impacted as you will have to wait longer for compensation to cover your medical bills.
Thirdly, a trial can be unpredictable and go either way. While in many cases, the insurance company will be required to pay out the compensation you are claiming, in some cases, they may be able to convince the court that you do not deserve the full amount you are asking for. In most cases, once the court has issued its verdict, you will not have the chance to go back and ask for more compensation.
Finally, going to court can be stressful for many people. They may find it difficult to speak publicly about the accident or feel pressured by the insurance company. Settling out of court can reduce stress levels and make the process easier to handle.
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Settlements allow insurance companies to minimise costs and manage risk
Insurance companies are for-profit businesses. When they handle a claim, they do so in a way that saves them money. They want to spend as little time and money as possible on each personal injury claim. Quick settlements help them achieve this goal. The longer a claim takes to settle, the more it costs the insurance company.
Insurance companies will try to persuade claimants to settle quickly. They understand that after an accident, claimants can be vulnerable. Claimants may be upset about the collision, stressed about financial ramifications, and worried about physical damage. The insurance company may try to exploit the situation by offering a settlement that is less than the claim is worth. They hope to settle right after the crash, before the claimant can obtain legal help.
Settlements are also beneficial to insurance companies because they are final and binding. A settlement agreement includes a release of liability, meaning the insurance company is not responsible for any payments outside of the settlement agreement. The claimant cannot ask for more money in the future and cannot take the case to court with a personal injury lawsuit.
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You can reject a settlement offer
Yes, you can reject a settlement offer. Rejecting an initial offer does not mean the end of settlement negotiations but is a common step in a longer process. After rejecting an initial settlement offer, you can expect one or more of the following scenarios to unfold:
- Continuation of Negotiations: Even if the insurance company refuses to meet your expectations with its first offer, both parties can persist in negotiations, aiming to achieve a mutually agreeable resolution.
- Possible Counteroffers: The insurance company may return with a counteroffer, and this back-and-forth may continue until an agreement is reached.
- New Insurance Adjuster: If negotiations reach an impasse or the insurance adjuster is demonstrating unreasonable behaviour, you can request a new adjuster. Asking for a change in the assigned adjuster could inject new momentum into the process.
It's important to understand that rejecting a settlement offer comes with risks and potential delays. However, it can also result in a more favourable outcome, such as a higher settlement or a resolution that better aligns with your needs and the extent of your damages.
- Insufficient Amount: The offered amount may not fully cover your damages, leaving you with an unreasonable financial burden.
- Disagreement on Liability: If there is a dispute over who was at fault, you may reject the offer to assert your claim's validity.
- Future Expenses: Concerns about potential future costs related to the claim, such as ongoing medical treatments or property repairs, can be a good reason for rejecting the offer.
- Uncertainty: You might reject an offer if you believe more evidence is needed to establish the full extent of your losses.
- Higher Expectations: If you believe the value of your claim is greater than the offered settlement, you may opt to hold out for a better outcome.
If you decide to reject a settlement offer, here are some steps you can take to protect your interests:
- Seek Legal Representation: Consult an experienced insurance claims attorney who can provide insight into the fairness of the offer and guide you on the next course of action.
- Evaluate the Offer: Carefully review the insurance company's first settlement offer and assess whether it adequately compensates you for damages, including medical expenses, lost income, and property damage.
- Consider the Timing: Be mindful of any deadlines associated with accepting or rejecting the offer, and discuss the time limit with your attorney to ensure you stay within legal constraints.
- Document Your Case: Maintain thorough records of all communication, documents, and evidence related to your claim. Keep all communications with insurance adjusters, proof of lost wages, and records of your medical expenses.
- Counter Offer: Propose a more reasonable settlement amount based on your assessment of the claim's full value.
- Engage in Negotiations: Continue negotiating with the insurance company's adjusters. Your attorney can assist by presenting your case and advocating for a fair offer.
- Send a Demand Letter: In some cases, a formal demand letter outlining your claim and desired compensation can strengthen your position during negotiations.
- Be Prepared for Legal Action: If negotiations fail to yield a fair settlement, pursuing legal action against the insurance company may become necessary. Your attorney can guide you through the legal process, working on your behalf to protect your rights.
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Frequently asked questions
Settlements are faster, less risky, and less expensive than court battles. Most injury cases settle before trial.
Settlements avoid the unpredictability of a trial. Trials are costly and can go on for years. Settlements are also quicker, which is important for plaintiffs who are often dealing with mounting medical bills and lost income.
Insurance companies are all about minimizing costs and managing risk. They will do everything they can to settle the claim before it gets to court.
First, gather the necessary information and evidence to support your claim, such as medical treatment receipts, witness testimony, and photos. Then, draft a demand letter setting out your claim, explaining your injuries, and laying out the damages you'd like to recover. Once you send the demand letter, the insurance company will investigate your case and either accept or deny it. If they accept, they will make a settlement offer, and both parties will negotiate. If they deny, you can appeal to the claims adjuster.
MMI refers to the point at which your medical condition has stabilized and is unlikely to improve with further treatment. MMI is important because it helps determine the extent of your injuries and the likely cost of future medical care, which can affect the settlement amount.
