Failure to Disclose Limits

One of the first things we do in every case is ask the insurance company about the at-fault driver's limits.

We need this information to figure out whether it makes sense to try to settle the case and, if not, how we should work it up for trial.

Most of the time insurance companies provide this information right after it's requested. But sometimes they don't.

When insurance companies don't provide limits information they usually write something like: "We are not authorized by our insured to provide limits information at this time...."

Really? I wonder what the insurer would have to tell the insured to obtain "informed consent" from the insured not to disclose?

Would the insurer have to tell the insured that not providing limits information may prevent settlement within the policy limits and create serious personal exposure for the insured?

Who in their right mind would decide--after receiving that information--that policy limits information (which is discoverable during a law suit anyway) shouldn't be provided to a person they injured?

No one.

When an insurance company plays games it does so at its own financial risk. This has been recognized over and over and over by courts in Washington and other states (particularly California).

In one case the claimant asked the insurer to disclose its policy limits. The insurer did not consult with its insured and refused to disclose limits.

The claimant then filed suit against the insured and obtained an excess judgment.

In the ensuing bad faith action, the liability insurer defended on the ground that it could not be liable for breach of the duty to settle because the claimant had failed to make a demand within the limits.

The court rejected this argument and held that bad faith claim can be based on an insurer’s prelitigation refusal to disclose policy limits because the refusal closes the door on reasonable negotiations.

It noted:

“[A] liability insurer ‘“is playing with fire’” when it refuses to disclose policy limits. Such a refusal ‘“cuts off the possibility of receiving an offer within the policy limits’” by the company’s ‘“refusal to open the door to reasonable negotiations.’” “A formal settlement demand is not an absolute prerequisite to a bad faith action when the insurer engages in conduct that prevents settlement opportunities from arising.”

A conflict of interest between the insured and its insurer arises, even without a formal settlement offer, when an insurer engages in conduct that prevents settlement opportunities from arising.

Insurance companies act like they're helping their insured's by protecting their "privacy" or whatever you want to call it when they don't disclose limits. But what they're really doing is exposing their insured to an excess judgment with no offsetting benefit.

So when an adjuster fails to disclose limits they're usually setting the stage for an open policy and the insurance company paying the full amount of the injured person's damages irrespective of how much coverage the insured purchased.