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Opening Up the Insurance Policy of the At-Fault Party

Insurance companies are governed by a very strict set of rules when it comes to handling your personal injury claim, but rules and obligations to car, truck or motorcycle accident victims varies depending on whose insurance company is being sought for compensation (see Bad Faith Insurance Claimsfor additional information). These rules help protect not only the victim of the accident, but also the insured (the one who often is responsible for the accident). One of these rules, in a nutshell, provides that if an individual is injured and his or her personal injury attorney makes a demand for the insured’s policy (i.e., the person at-fault has a $25,000 policy and all $25,000 is demanded by the personal injury attorney for purposes of settling the injured victim’s claim) then the insurance company has a reasonable time, typically 30 days, upon proper demand, to pay that full amount or it risks being “exposed” to a settlement/judgment that is more than the original policy limits. For example, you were injured in an accident by someone who has a $25,000 policy. You suffered a broken shoulder and required extensive physical therapy and suffered enormous pain and suffering (see What’s the Value of a Personal Injury Claim?). The insurance company for the person who is responsible for your injuries was presented with a demand for their insured’s policy of $25,000. The insurance company knows that they must pay you the full policy within 30 days after proper demand because if they don’t and the matter continues, they will be liable to pay the entire amount of the settlement/judgment, which will invariably be much more than $25,000. Where the insurance company was only legally/contractually obligated to pay $25,000 per the terms of their insurance contract, they now have to pay an amount that could be in the hundreds of thousands of dollars. As you can see, there is a large incentive for them to act fast and reasonably in settling your personal injury claim if it’s clear the value of your claim exceeds the policy of the person who injured you. This is a beneficial rule for both the victim and the insured. On one hand, it protects the insured (i.e., at-fault party) from having to pay the victim personally (when the likelihood that the insured has enough assets to cover a large settlement/judgment on his own is very small), and on the other hand, it protects the victim by ensuring that should the insurance company unreasonably deny settlement, there will be enough assets available to properly compensate the victim because the judgment/settlement will be paid by the insurance company’s deep pockets. Your personal injury attorney will properly advise the insurance company of its obligations to settle in a reasonable and fair manner or risk being exposed to an excess amount should they fail to do so.

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