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A Refusal to Settle Can Be Insurance Bad Faith

A recent New York automobile accident case in Supreme Court, Kings County, reveals how an insurance company may be liable for damages when it refuses an offer to settle a case within its policy limits, and the defendant later loses at trial.

The case is Taveras v. American Transit Co., decided on October 17, 2011. The plaintiff, Jesus Taveras, was a passenger in a taxi that hit a rental car in front of it and was then rear-ended by another taxi behind it. The plaintiff suffered multiple injuries requiring surgery and sued the drivers of all three cars. A jury found both taxi drivers responsible for the plaintiff’s injuries and awarded him $9.3 million, a judgment which was later reduced to $2.5 million. Although the driver of the taxi, Muhammad Amir, was found only 70% at fault, he was held “jointly and severally” liable along with the other cab driver, meaning that he could be pursued to pay the entire judgment.

Both taxi drivers were insured by the same insurance company, American Transit, which held $100,000 liability policies on each driver. After the multi-million dollar verdict was reached, Mr. Amir learned that Mr. Taveras had offered before trial to settle the entire case for $200,000, but American Transit had refused.

Mr. Amir assigned his rights to Mr. Taveras, who sued American Transit for bad faith based on its refusal to settle. Even though Mr. Taveras won a large judgment against Mr. Amir, by refusing to settle and forcing Mr. Taveras to sue, American Transit left Mr. Taveras with a multi-million dollar judgment against a cab driver that he would be unlikely to collect on. The court held that the insurance company acted with reckless disregard for the interests of its insured and found in favor of Mr. Taveras.

This case is an example of extra-contractual liability. Where an insurance company unreasonably refuses to settle a case for an amount within its policy limits, and the defendant later loses at trial, the carrier may be liable for the full amount of the judgment, even if it is in excess of the policy limits. This concept is well-established in many jurisdictions across the country, and now insurers in the state of New York have received a wake-up call that the same concept applies here as well.

If you have been injured in an automobile accident in New York, contact Leandros A. Vrionedes, P.C. to represent you in negotiations with the insurance company or in courtroom litigation as necessary to ensure you receive maximum compensation for your injuries.