An insurance bad faith action occurs when your insurer fails to protect you from a judgment exceeding the limits of your insurance policy.
For instance, perhaps you caused a car accident that resulted in the catastrophic injury of another driver. Before the accident, you purchased an automobile insurance plan that provided a $100,000 policy limit for bodily injuries per person, a $300,000 policy limit for bodily injuries arising out of the entire incident, and a $300,000 policy limit for property damage.
You diligently called your insurance company to report the accident. Your insurance company then opened a claims file and decided to defend you against the other driver. Due to the severity of the other driver’s injuries, it became readily apparent to any reasonable person that the insurance company needed to make an offer to settle the claim against you for the full amount of your policy limits. The insurance company instead opted to do nothing to attempt to resolve your claim.
The injured driver, who had yet to receive anything for his injuries, is forced to file a lawsuit against you in civil court to recoup his damages. The case proceeds to trial, and the jury ends up finding you liable and awarding the other driver $1,000,000 in damages
Now you have a $1,000,000 judgment entered against you—well beyond the amount of your policy limits. You soon discover that the injured driver would have accepted to settle for your policy limits if your insurance company ever offered. But they didn’t and now the injured driver wants to collect the $1,000,000 from you. This never would have happened if your insurance company did what it was supposed to do. Instead, your insurance company acted in bad faith, and you or the injured party has a right to file a bad faith action against it to recover the $1,000,000.
Derivative Liability
Derivative liability, also known as vicarious liability, is when you are liable for the negligent acts of another through your relationship with that person. Under derivative liability, you can be found liable for someone else’s injuries even if you did not cause the accident and was not around when it happened.
Employer/Employee
If an employee commits a negligent act during the scope of his or her employment, then the employer is also held liable for the employee’s actions. Commonly referred to as respondeat superior, the employer owes the injured party the same duty of care as the employee because the employee is simply acting as the employer’s agent. For the employer to be on the hook, you need to show that the employee was subject to the employer’s control at the time of the accident. For example, if your vehicle is negligently struck by a bakery truck while the driver of that truck was out making a bread delivery, then the bakery is also liable for causing the accident and your injuries. The driver was clearly acting under the scope of his employment when the accident occurred.
Owner/Driver
In Florida, a motor vehicle owner is vicariously liable when the owner lets another person drive his vehicle and that person ends up causing an accident. The reasoning is that the owner is in the best position to determine whether he has enough money to pay for any damages caused by the borrower and whether the borrower is trustworthy and reliable enough to be driving. Although it is debatable whether anyone really considers these reasons when they decide to lend their car, it is something to think about before you hand your car keys over to anyone.
There are very few exceptions to this principle, one of which concerns rental cars. Under a federal law known as the Graves Amendment, anyone who operates a business renting or leasing motor vehicles is not liable if the person they rent a vehicle to gets into an accident.