When you are sued and your liability insurer defends you, the insurer decides whether to settle. You do not. That works only if the insurer weighs your exposure as seriously as its own. When it doesn’t, you may owe money your policy should have covered.
California law requires a liability insurer to give your interests at least as much consideration as its own. If a reasonable chance to settle within your policy limits arises and the insurer passes on it. A judgment later exceeds your coverage, the insurer may owe the entire judgment rather than the policy amount.
Most policyholders never see this coming. You bought limits and assumed they capped what a claim could cost you. Usually they do. They stop capping it when the insurer mishandles the chance to end the case.
When a Refusal to Settle Becomes a Problem
Not every excess judgment reflects insurer wrongdoing. Insurers may take cases to trial, and they may be wrong about the outcome. The question is whether the decision was reasonable when the insurer made it, measured by your risk rather than the insurer’s cost. I examine six things:
- Whether a settlement offer within your limits arrived, and what it required
- What the insurer knew about liability and damages while that offer stood open
- Whether the insurer investigated the claim before deciding
- How likely an adverse verdict was, and how large
- Whether the insurer told you about the offer, warned you about the exposure above your limits, and let you respond
- What the insurer recorded about its evaluation at the time
An insurer that refuses to settle because it believes the claim falls outside the policy takes a risk. A sincere but mistaken belief about coverage may not protect it. An insurer with doubts about coverage has options other than exposing you to a judgment.
Settlement Demands With Deadlines
Many of these cases start with a settlement demand that carries a deadline. California has adopted specific rules for certain pre-lawsuit demands, governing what the demand must say and how long the insurer has to respond. Those rules apply to some claims and policies, but not others. Whether the demand met the applicable requirements is often the first thing worth examining, because it shapes what follows for both sides.
After an Excess Judgment
A judgment above your limits does not have to come out of your pocket before you can act. Your claim against the insurer stands apart from the underlying case, and it has value.
Usually more than one route exists. You can sue the insurer yourself. You can transfer the claim to the party who won the judgment, ordinarily in exchange for an agreement not to collect from your personal assets. In some circumstances, that party can pursue the insurer directly once the judgment becomes final.
The right route depends on the facts, including what the insurer did during the underlying case. Each carries requirements, and how you structure the arrangement at the time determines whether it holds up later. Build it correctly then, not afterward.
What You Can Recover
When the insurer bears responsibility, your recovery isn’t capped at the policy amount. It can include the portion of the judgment above your limits. Depending on the case, it may also include the attorney’s fees you incurred to obtain the benefits the insurer withheld, other financial harm the insurer’s conduct caused, emotional distress, and, where the conduct is serious enough, punitive damages.
These claims overlap substantially with insurance bad faith, and they are often brought together.
Defense-trained. Policyholder-focused. Reach Out Today!
If a judgment exceeds what your policy covers, or an insurer refused a settlement offer it should have accepted, contact me. I spent years on the insurance side of these disputes before representing policyholders, and I know how insurers make these decisions. I meet with clients in English, Armenian, and Russian.