When the Insurance Company Disagrees With Our Evaluation

Well, honestly, the insurance company never starts out by agreeing with our evaluation of a claim.  They may grudgingly acknowledge that a particular claim has value over policy limits and offer – or “tender” -- those policy limits in a prompt settlement, but they’re still ready and willing to argue over the claim's full value.  Part of this may be a conscious effort on the insurance company's part to lowball the claim or simply delay resolution of the claim. Part of it may simply be the negotiating process between the insurance company (starting on the low side) and an experienced personal injury attorney (starting on the high side) trying to reach a fair and agreeable settlement offer somewhere in the middle.

Most settlement demands are submitted to the opposing insurance company either (1) when it’s clear that the claim’s value is substantially more than the policy limits and payment of those limits is expected, or (2) when the personal injury victim’s medical course of treatment is either complete or far enough along for their doctors to accurately forecast their likely future prognosis, course of care, and permanent symptoms or disabilities.  Most of the time, an experienced personal injury attorney will have a very good idea of the claim value – either policy limits or a less-than-limits dollar amount – at the point where settlement is demanded.

Once a settlement demand is submitted, there is typically some negotiation period – usually over a matter of a few weeks or so – as the parties go back and forth, highlighting the perceived values and deficits in the claim and bargaining toward a perceived “fair” settlement offer.  Either an agreeable settlement value is reached, and the claim is resolved, or the insurance company’s “best and final” offer is inadequate, and other options have to be explored.

Risk-Benefit Analysis with the Client

Sometimes an insurance company’s offer is just “insultingly” low.  An experienced personal injury attorney will first look at his/her settlement demand to make sure that the initial valuation wasn’t erroneously high and triggering an equally low offer on the claim.  If not, then proceeding into litigation (in a third-party liability claim) or into arbitration (in a first-party uninsured/underinsured motorist claim) is almost always the way to go.  The insurance company isn’t willing to make a reasonable offer, and there’s rarely any benefit from waiting before filing suit.

But sometimes the insurance company offers an amount that’s . . . almost there – just a little short.  If they’ve shown any inclination to continue bargaining, then a counter-offer might be called for, but if they’re clearly at their final offer, then a closer look at the numbers is appropriate.

As soon as a suit is filed, the litigation costs that have to be paid out of any eventual settlement, award, or verdict start mounting.  Simply filing suit in superior court in California and having the filed summons and complaint served on the defendants by a process server will cost $500 and up.  Likewise, most personal injury attorneys will charge a higher fee on cases that go into litigation – the amount of attorney and staff time for litigation cases is much higher, and most attorneys will advance litigation costs on behalf of the clients, absorbing the risk associated with that.  Because of the increased costs, fees, and risks of litigation, a settlement offer today that’s at 80% or 90% of full claim value may be worth as much or more to the client at the bottom line as a 100% full claim value offer on a case in litigation.  And it will put the money in the client’s pocket today rather than after several months in litigation.

An experienced personal injury attorney will make this cost-benefit analysis and present it to the client – it is always the client’s decision whether or not to accept the offer that the insurance company has made – and advise the client as to what appears to be the best route to go.

Some Claims Mature with Patience

It’s very rare for the value of an insurance claim to drop over time.  If a personal injury claimant dies before resolving the claim, then the general damages -- “pain and suffering” -- a portion of the claim may be lost.  Otherwise, already made offers generally remain on the table.

For an injury victim who has completed medical treatment and has no ongoing symptoms, medical treatment, wage loss, or other expected future losses, the full claim value isn’t going to be changing much over time.  There are no accumulating additional monetary or non-monetary damages.  But for an injury victim who has ongoing medical treatment and/or other losses, the claim value is likely to increase or become better substantiated – over time.

In theory, $1,000 worth of medical bills for treatment already received has the same claim value as $1,000 worth of medical treatment that is confidently forecast by an injury victim’s doctors.  Likewise, $1,000 of past wage loss should have the same claim value as $1,000 of future wage loss.  However, in reality, past monetary damages virtually always have greater value -- often much greater value – than do predicted future damages.  And since an injury victim whose physical condition is still requiring medical treatment is by definition not yet healed, their diagnosed injuries may also change over time – resulting in additional claim value from additional diagnoses.

For claims like this, a cost-benefit analysis should also be prepared and discussed between attorney and client.  Some clients will have financial needs that require settlement for a lesser amount at an earlier time; other clients who can take more time to see their claims further mature may see significant benefit from taking a longer-term approach.  Often in these situations, an experienced personal injury attorney will go ahead and file suit, expecting that the additional leverage of litigation may be needed to achieve a full-value resolution of the claim.

“Opening Up” the Policy

Insurance companies have an obligation to their policyholders to resolve claims – if possible – within the policy limits.  Failing to do so exposes their policyholder to the possibility of an “excess verdict” -- a verdict for an amount greater than the insurance policy limits. The policyholder is personally responsible for satisfying out of their own assets income.  This is likely to result in a bad-faith lawsuit by the policyholder against the insurance company for the insurer’s failure to resolve the claim.  Alternately, the insurer can pay the excess verdict on behalf of the policyholder.

Neither of these options is appealing to an insurance company. A bad-faith lawsuit may result in monetary damages, potentially punitive damages, etc. for their failure to resolve a claim or pay a jury verdict that is potentially far greater than their policy limits.  That’s why most insurance companies will promptly resolve and pay a claim that is clearly worth more than the policy limits.  The keyword here is “clearly.”  Insurance companies will always be conservative in their valuation of claims – they don’t want to pay more than they absolutely have to.  If there is room to argue that a claim is worth less than policy limits, you can bet that the insurance company will argue.

However, if an insurance company has been presented with clear evidence of a claim likely having a value over its policy limits, and the insurance company has rejected offers to settle for policy limits. The argument can be made that the “policy has been opened up,” meaning that the insurance company should now be responsible for paying the claim's full value, even the amount over its policy limits.  Whether or not this actually happens is all a matter for argument. Ultimately, it is a question of whether or not the insurance company wants to risk a bad-faith lawsuit and/or responsibility for an excess verdict.  The more substantial and clear the evidence, the more times the insurance company has been extended the opportunity to settle within limits. The more likely this argument that the policy is “opened” will be successful.

Collaboration with Other Lawyers

For most attorneys, the practice of law is a matter of specialization – personal injury law, family law, criminal law, tax law, business law, etc.  However, even within these categories, there are often additional levels of specific expertise.  Within personal injury law, for example, sub-specialties can include medical malpractice law, automobile defects law, drug and medical product defects law, other types of defective products, roadway defects public entity liability law, marine/airline/railroad/transportation injury law, and others.  Just as it is difficult for an attorney to specialize in more than one broad area of law, it is also difficult to specialize individually at a high level in several sub-specialties.

An experienced personal injury attorney will know when it’s time to bring in additional expertise for the special cases.  Sometimes this will happen very early in the case when the particular type of claim demands early and active participation by specialist attorneys.  More often, this occurs when settlement demand attempts at resolution have failed, and the case is in or headed toward litigation.

Mediation, Arbitration, Settlement Conference & Trial

Ultimately, when the insurance company is simply unwilling to make a fair offer on a claim, and the risk-benefit analysis calls for moving forward, the only realistic option is to file a lawsuit (or demand arbitration in a UM/UIM claim) and move forward to a final resolution with either a judge and jury or with an arbitrator.  Unfortunately, these steps take increasing amounts of time and litigation costs – an experienced personal injury attorney will be willing to advance litigation costs of tens of thousands of dollars. A particularly complicated trial may have costs of $100,000 or more.

Along the way, there may be opportunities for resolution of the claim through steps such as mediation or judicial arbitration -- non-binding hearings in which a mediator tries to help the parties reach a mutually-agreeable settlement, or a court-appointed arbitrator provides an “advisory” claim value.  Courts will generally require a formal settlement conference before they make a courtroom available for a trial.  If none of these steps result in a settlement, then the matter moves on to trial.

An experienced injury lawyer will recognize each of these opportunities for a fair settlement, analyze the options and advise the client, and be prepared to take the case where it needs to go.

See more on insurance companies and their claim tactics below, and how an experienced personal injury attorney should deal with them:

• The Insurance Industry and Individual Companies -- Hugely Profitable
• Types of Auto Coverage and First and Third-Party Claims
• How an Experienced Personal Injury Attorney Deals with Insurance Company Tactics
• Dirty Tricks Insurance Companies Play in Accident Claims

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