Auto Insurer Liability Capped in Crash Case Duty to Defend Breach

Auto insurers in Florida have two duties with regard to their insureds:

  • A responsibility to indemnify, or pay damages for which insured would otherwise be liable (up to policy limits);
  • Duty to defend insured from legal action (i.e., hire a lawyer and help mount a defense).car accident attorney

Even if an insurer argues it doesn’t have a duty to indemnify (the incident is not one that is covered or the person is not one for whom coverage should be extended), there is often still a duty to defend. Failure to adhere can be a form of bad faith insurance. This could ultimately be an issue for plaintiff to deal with directly if the at-fault driver assigns whatever claims he or she might have had against the insurer for this over to plaintiff as part of whatever settlement is ultimately reached.

Insurers are within their rights to outline the parameters under which they will provide coverage, and there are unfortunately a host of rules and exceptions in almost every policy. However, many times insurers will interpret their policies a bit more broadly than they should, which is why it’s important to have an experienced car accident attorney in South Florida who will fight for you and take them to task.

Recently, a federal appellate court ruled that an auto insurer that wrongly refused to provide a defense in a lawsuit involving a crash with catastrophic injuries to a teen passenger would not have to pay millions – as a state court had previously ruled – but would need to tender the $25,000 policy limit. On the one hand, this is disappointing news to a plaintiff who would have been entitled to much more had the previous ruling been upheld. On the other hand, this insurer might not have had to pay anything to plaintiff had it provided a defense as it was required to do.

Here’s what happened, according to records with the U.S. Court of Appeals for the Seventh Circuit:

There was a party in suburban Illinois attended by numerous teenagers. One of those in attendance borrowed her mother’s car to get there. Although that girl would later say she did not hand over her keys to defendant (a fact defendant disputes), defendant nonetheless came into possession of those keys. Defendant – who had only a restricted license – then left the party and picked up several other underage passengers, including plaintiff.

Defendant then crashed into several parked cars, resulting in injuries to several passengers, including traumatic brain injuries to plaintiff.

Plaintiff (with her mother’s help) filed a personal injury lawsuit against defendant. Neither defendant nor her mother had auto insurance. The insurer of the vehicle believed the daughter of its insured, who said she never gave permission for defendant to drive the car. As such, it refused to provide defense or indemnity. Ultimately, the trial court issued a default judgment against defendant favoring plaintiff in the amount of $4.6 million. Defendant assigned whatever claim she had against vehicle owner’s insurer over to plaintiff. The court ruled that because the insurer failed to either defend the driver or seek a declaratory judgement of non-coverage, the insurer violated the law – making it liable for the entire tort judgment, though policy only provided $25,000 per person in coverage.

Auto insurer now concedes it should have defended the driver while reserving the right to decline indemnity, but argued liability should not exceed the policy cap. After determining the 7th Circuit had jurisdiction, the court agreed with the insurer. The court ruled that although the controversy exceeds $75,000, the judgment should not have exceeded $25,000 – because that’s all insurer ever promised to pay and all defendant lost when the insurer declined to defend or indemnify. Although state law would have allowed the limit bad faith insurance to policy limits plus a maximum of $60,000 extra, a mere failure to defend in this case wasn’t necessarily bad faith nor would it render insurer liable for the amount of the judgment in excess of policy limits.

Our car accident injury attorneys in West Palm Beach know that insurers and their lawyers are well-versed in the law and their obligations. It’s not uncommon for insurers to try to pay claims for less than they are worth – or not pay them at all – because they are banking you won’t know any better. Their chances of prevailing are much slimmer when you have a dedicated injury lawyer at your side.

Contact the South Florida personal injury attorneys at David J. Halberg, P.A., Attorneys at Law, by calling toll-free at 1-877-425-2374. Serving West Palm Beach, Miami, Tampa, Orlando and Fort Myers/ Naples. There is no fee unless you win.

Additional Resources:

Hyland v. Liberty Mutual Fire Insurance Co., March 15, 2018, U.S. Court of Appeals for the Seventh Circuit

More Blog Entries:

Defective Guardrails Reportedly Linked to Deadly Crashes, Feb. 5, 2018, West Palm Beach Car Accident Attorney Blog