Insurance Gulp!

[mike_elliott]

For what its worth, insure to your risk tolerance. If you have a net worth of 100K, then 100K sublimits might not be so bad, as typically, deep pockets are what plantiff slip n fall guys like to see. If your net worth is more, it might be wise to consider a higher policy. I can speak with authority it doesn't take long to rack up 1 million in a hospital from a plane accident.

[PT20J]

It is my understanding that the insurance company has a duty to defend you and will attempt to get the lowest possible settlement without regard to the policy limits. But, at the end of the day, it will not pay out more than the policy limits.

Perhaps @Parker_Woodruff can tell us how often a settlement has historically exceeded the policy limits.

Skip

[jwilcoxon78]

32 minutes ago, 1980Mooney said:

I am trying to understand how these sub limits work.  One of the benefits of insurance, in the case of an accident that harms others or private property, is that the insurance company legal team handles the likely ensuing legal nightmare.  Assuming everyone survives an accident, spinal and neck injuries are common and effects could be long lasting.  On the Accident forum recently there was a K that threw a rod over Georgia - the husband and wife survived the forced landing.  The plane remained reasonably intact but they both had severe spinal injuries as reported by family members, one requiring spinal stabilization surgery and the pilot displaced spinal cord with loss of feeling in legs, in trauma for a week and intensive rehabilitation since.   I suspect that the immediate cost for each will blow way through $100,000 and if there is loss of mobility for the pilot there could be continuing long term costs in the $tens of thousands each year.

Point being that if these were passengers they would easily be looking for a $1 million settlement.  So does the insurance legal team handle the lawsuits and negotiate a settlement?..and then the insurance company pays the first $100,000 and sends you a bill for the remainder? ($900,000 in the case of a $1 million settlement)?  Or do you have to hire your own legal defense that works in parallel with the insurance company lawyers?  If you have to have your own lawyers sitting with the insurance lawyers then who leads and negotiates the settlement?  

These sub limits related to passengers (injury/claims) sound like they are only slightly better than going bare.  In addition to the cost of the claim you still have to bear the cost and hassle of hiring and dealing with lawyers.  It seems like one could be putting their estate and family at risk in the case of a survivable accident with passengers.

If I had sub limits on passengers I would think long and hard about taking anyone flying.  

Especially with a sublimit on a severe case, you'll likely get an excess letter from your carrier to advise you that you could face an exposure in excess of your policy's limit.  In a covered loss, the carrier would retain an attorney on your behalf to defend and negotiate settlement within the limit of the policy.  In the event the limit is obviously not enough, and depending on the language of the policy, the carrier would tender the limit to the claimant and continue to defend you (unless it's accepted).  Additionally, the Insured can elect to contribute on the front end to try to get the case settled.  

Meanwhile, the Plaintiff's will also try to get anyone else that they can with a policy (airframe, engine, prop manufacturers; maintenance shops, etc). 

  

[jwilcoxon78]

36 minutes ago, 1980Mooney said:

It seems to me that attorney is paid by and looking out for the insurance company's interest.  I understand that the attorney hired by the insurance company "on my behalf" will only tender the limit to the claimant since that is the limit of what the insurance company has authorized him/her to do.  The claimant's lawyers will probably say "pound sand" and that "your limit is not their problem."  Once settlement negotiations or proceedings exceed or are proposed to exceed the relatively low sub limit, the insurance company has no exposure beyond the already cross threshold (sub limit).  Without exposure I am wondering what motivation the attorney that has been hired by the insurance company has to defend me and fight for the lowest settlement which I will bear.  If the claimant rejects let's say a $100,000 limit and instead claims $1 million, what really happens? - Will the attorney (paid by the insurance company) still keep defending me regardless of how long, high and painful of a fight the settlement negotiation becomes?

This is false.

Depending on the policy language, yes, the attorney (and carrier) is obligated to defend the Insured until settlement or judgement or award is reached.  Generally speaking, the duty to defend outweighs the duty to indemnify.  The attorney hired on your behalf is more obligated to the Insured than the carrier.  As you highlighted, with the excess exposure, the carrier has no more exposure with respect to indemnity.  That being the case, the attorney certainly has to work with the Insured more closely.  At any time, an Insured can retain their own counsel at it's own expense.  Conversely, if the loss can be settled within the policy limit, the Insured is rarely consulted.  The defense attorney and carrier simply work through the matter with the plaintiffs, only bringing in the Insured when necessary.  Remember, settlement negotiations are to avoid litigation.  Once it goes to court, the ball is out of everyone's hands.  

In some cases, the cost of defense can be more than the policy limit/settlement made.  

The carrier has a duty to settle, or attempt to settle, the claimant's claims on behalf of the Insured within the policy limits.  If the claim is obviously in excess of the limit, in most states, the carrier must immediately tender the limits in an "attempt" to settle.  

[Ron McBride]

I was involved in a commercial real estate lawsuit.  I ended up hiring an Attorney that specialed in Insurance law.  The attorneys for my insurance company were not happy.  Their tunes changed quickly, and they settled soon, well within policy limits.  The money spent on our attorney was well spent keeping the insurance companies attorneys in line. 
 

Ron

 

[Vance Harral]

8 hours ago, 1980Mooney said:

If the claimant rejects let's say a $100,000 limit and instead claims $1 million, what really happens?

Bear in mind that the "claimant" is often not the inured party themselves, but rather the injured party's own insurance company, who has already paid the injured party the full $1M, and is only attempting to subrogate against your insurer.

The odds the injured party's insurance company will accept a $100K payout from your insurance company in the settlement, even though they just paid their own client $1M, are actually pretty decent.  The $1M they paid their client is presumably already built into their own actuarial bets, and they're just trying to move the balance needle a little toward the side of profitability.  Given a "take $100K right now or pay your own attorneys to fight us in court for a long time" offer, the injured party's insurance company is quite likely to take the settlement offer from your insurance company, even though it's only a fraction of what they paid out.  None of this settlement negotiation involves either you or the injured party.  It's just a dispassionate business discussion between two insurance companies, both of whom would like to avoid a court case.

To be clear, you might be unlucky enough to injure someone who has absolutely no insurance of their own but subsequently hires a shark of an attorney; or the injured party's insurance company might be willing to go fight your insurance company in court, and win.  But in most cases there are incentives not to press an individual for more than the limits of their policy.

Interesting data point: during an insurance webinar given by Avemco, I asked why Avemco doesn't offer "smooth" insurance.  The person on webinar claimed that industry-wide knowledge Avemco doesn't write smooth insurance and aggressively defends per-passenger sublimits, has resulted in a history of essentially every claim they process being settled for said sublimits.  I have no way of verifying this is true, but it's interesting to think about.

[larrynimmo]

On 7/21/2021 at 9:48 PM, Shadrach said:

That is dirt cheap for 1mm smooth and that hull value.

I am almost identical….81J, 700hrs …150 per year ,135k,IFR,66year old …hangered, 5k home runway

renewwed in June for 1976.

[mike_elliott]

7 hours ago, Vance Harral said:

Interesting data point: during an insurance webinar given by Avemco, I asked why Avemco doesn't offer "smooth" insurance.  The person on webinar claimed that industry-wide knowledge Avemco doesn't write smooth insurance and aggressively defends per-passenger sublimits, has resulted in a history of essentially every claim they process being settled for said sublimits.  I have no way of verifying this is true, but it's interesting to think about.

There unfortunately will come a time one of their plane owner clients with a higher net worth will wish they had offered higher per passenger sublimits. 100K is a drop in the bucket of what a serious injury to a pax can cost the passenger. The balance will come from the plane owner's pocket when the passenger has an attorney that aggressively seeks relief.

[Shadrach]

3 hours ago, larrynimmo said:

I am almost identical….81J, 700hrs …150 per year ,135k,IFR,66year old …hangered, 5k home runway

renewwed in June for 1976.

At that price, I’d bet you have per seat sub limits and not “smooth” coverage. If you do have smooth coverage at that price, please let us know who’s insuring your plane…I’ll switch immediately.

[Bravoman]

5 hours ago, mike_elliott said:

There unfortunately will come a time one of their plane owner clients with a higher net worth will wish they had offered higher per passenger sublimits. 100K is a drop in the bucket of what a serious injury to a pax can cost the passenger. The balance will come from the plane owner's pocket when the passenger has an attorney that aggressively seeks relief.

That is precisely why insuring in  that manner in  is a false economy for the insured. I can tell you from personal experience as plaintiffs counsel whether it be in  an aviation scenario or otherwise, if the injuries are catastrophic and the net worth of the tortfeasor is substantial, the tortfeasor will be contributing significantly from their personal assets to any resolution of the matter, whether by settlement or judgement. 

Edited July 23, 2021 by Bravoman

[Vance Harral]

1 hour ago, Bravoman said:

That is precisely why insuring in  that manner in  is a false economy for the insured.

I'm not disagreeing with your point.  But everyone accepts some policy limit, and hopes the insurance company's duty to defend eliminates or at least mitigates any damage beyond that limit.  $1M is also a "drop in the bucket" if a high net worth individual is killed.  What makes $100K an unacceptable limit, and $1M acceptable?  Why not $2M or $5M or $10M?

The answer lies in the net worth of the individual purchasing the insurance.  No matter how good a shark the damaged party's attorney is, they're not going to spend time pursuing a $10M judgement against an individual whose net worth consists of a Cessna 150, eighteen dollars in a checking account, and stack of pizza coupons.  I grow tired of the accusation that pilots who accept $100K sublimits are cheap and naive.  $100K sublimits are completely reasonable for a large percentage of aircraft owners.

[Bravoman]

45 minutes ago, Vance Harral said:

I'm not disagreeing with your point.  But everyone accepts some policy limit, and hopes the insurance company's duty to defend eliminates or at least mitigates any damage beyond that limit.  $1M is also a "drop in the bucket" if a high net worth individual is killed.  What makes $100K an unacceptable limit, and $1M acceptable?  Why not $2M or $5M or $10M?

The answer lies in the net worth of the individual purchasing the insurance.  No matter how good a shark the damaged party's attorney is, they're not going to spend time pursuing a $10M judgement against an individual whose net worth consists of a Cessna 150, eighteen dollars in a checking account, and stack of pizza coupons.  I grow tired of the accusation that pilots who accept $100K sublimits are cheap and naive.  $100K sublimits are completely reasonable for a large percentage of aircraft owners.

Insuring  oneself requires walking somewhat of a fine line. We can all insure  ourselves into the poorhouse. I agree that in order to avoid that the insured has to accept some reasonable degree of risk. But it should be reasonable. The person who has a net worth of 5 million is not wise to insure with a 100k sublimit. If your wife or your child was catastrophically injured or killed by a driver with that type of net worth but foolishly driving around with state minimum coverage of 25k I highly doubt you would authorize your lawyer to settle the matter for that 25k policy limit. 

Edited July 23, 2021 by Bravoman

[Vance Harral]

26 minutes ago, Bravoman said:

If your wife or your child was catastrophically injured or killed by a driver with that type of net worth but foolishly driving around with state minimum coverage of 25k I highly doubt you would authorize your lawyer to settle the matter for that 25k policy limit. 

That $25K settlement would be perfectly acceptable to me if:

1) My wife/child's life insurance company has already paid me directly for the full value of the financial loss, and the $25K in question is only going to my insurance company, not me.  This is a somewhat common scenario.

2) I am only interested in actual financial damages, not punitive damages.  I concede this is much rarer.

Not everyone carries adequate insurance for themselves, of course, and their financial straits in the event of a loss is high motivation for them to retain an attorney and sue.  But a lot of people do carry adequate insurance for themselves, and have no motivation to personally sue anyone after they've already been adequately compensated by their own insurer.  How likely you think this scenario is, is part of the calculus of selecting the limit you're willing to pay for.

Issue (2) is very tricky, of course, because the need for vengeance is a common human emotion.  If Jeff Bezos mows down my infant child in a botched Blue Origin Shepherd landing, I'm going to want every penny of his billions, despite the fact that the financial impact to me is actually positive since I no longer have a child to raise.  But the ugly part of this calculus is, just because I tell my lawyer I want every penny doesn't mean Jeff is actually at much risk of losing his fortune.

More importantly, the need for vengeance is dependent on the actual incident.  Again, if his Amazon-ness kills my infant child, I might spend the rest of my life pursuing him in court.  But if all he did was knock the bumper off my 2007 Suburban, I wouldn't go looking for millions just because he's a rich guy.  I concede others would, but their likelihood of success is low, and almost all attorneys they might retain know that in the first place.

Anyway... I don't think there's actually much disagreement between us.  Again, I just get a little tired of the implication that accepting $100K passenger sub-limits is foolish.  It may or may not be foolish, but it depends on the insured party's particulars and risk tolerance.  It is also the case that in some scenarios one simply cannot get any kind of aircraft liability insurance without $100K sub-limits: low experience, aircraft is in a partnership, etc.  Accepting $100K sub-limits is certainly a financial gamble, but arguably no worse a financial gamble than flying a small airplane and thereby becoming an attractive target in the first place.  And again, if $100K sub-limits aren't acceptable, what is?  Pretty much every argument that applies to $100K limits also applies to $1M limits.  As Mike noted, you can easily burn through $1M of damage, health care, etc.

[GeeBee]

Vengence is not how awards go except for punitive damages. Most damages are actual. Put a 100k/year bread winner (not a huge earner) in a wheel chair and 1 million burns up real fast in actual damages. Between continuing doctor bills, accessible  equipment and modifications as well as pain and suffering? No, you're going to be grating a lot of cheddar and for a long time. Oh and just in case you think his health insurance should cover his doctor bills, yes, they will then they coming looking for you for subrogation. Between the airplane, two personal watercraft and a boat I absolutely shudder when I think of my liability exposure. 

Let me tell you something else. I've sat in deposition with 9 lawyers all parties to a measly 100K instructor liability. You would have thought 10 pounds of meat was thrown in a sled dog pack. Don't under estimate the legal profession in its proclivity to make something very big, out the most trivial of claims. They have to eat too.

 

[Ron McBride]

Insurance companies represent themselves first.

Attorneys represent themselves first.

It’s all about the money.