Governor Tim Pawlenty last Friday signed into law the closely watched Good Faith bill. The new law puts insurers who fail to make a good-faith settlement offer when their liability is reasonably clear on the hook for up to $250K in damages and $100K in attorney fees. The caps were added as part of a legislative compromise. In political parlance, the new law has teeth, but not fangs.
Here’s an example of how the new law might work. You are sitting in traffic on a clear day, and an SUV rams into the rear of your car. The driver gets out, and says, “I’m so sorry, it’s completely my fault. I was sending a text message and drinking a cup of coffee.” The driver has $50K in coverage, and you have another $100K in underinsurance coverage. Your medical bills and related costs exceed your coverage, totalling $250K. The driver’s insurer pays you his full $50K policy limit. But your insurer, trying to save a few bucks, only offers you $75K in UIM limits. You go to trial, and, as predicted, the jury awards $250K.
Under the new good faith law, your insurer must pay you not only the full $100K limit of your UIM policy, but also an amount equal to half the amount your damages exceeded the amount offered by the insurer (i.e. $250K – $75K offer = $175K/ 2 = $87.5K). Thus, you are getting $87.5K more than you would have been entitled to receive under the policy because of the good-faith violation. In addition, you can recover up to another $100K in attorney fees.
With the caps, the amounts involved are not massive. But they are enough to change the math when the bean counters calculate whether or not it’s worthwhile to dicker with someone clearly entitled to benefits.