Are You In Good Hands?

It’s Summer-time in Central Texas. The humidity hangs in the air, causing sweat to bead up on your forehead as you walk outside.  The thermometer in the car reads 85*, and it’s only 8:00 a.m.   George is on his way to work, focused on the day ahead and what he needs to get done before the long, holiday weekend.

George is a hard-working man.  He is a husband and a father.  The sole bread-winner for his small family.  George is cautious; he never texts and drives.  He has a checking account, savings account, and even a retirement account. George has full coverage insurance on all of his vehicles, and was told he is in Good Hands.  He asked about it at work and believes that the coverage he has paid for will get him back where he belongs, because after all, it pays, it’s there, and they are on your side.

But George will soon find out how “on your side” his insurance company really is.

John is also on his way to work, but John left a few minutes late this morning, and in his rush, tries to make it through the yellow light on Main St. just as George is approaching from his left.  CRASH!  John t-bones George’s subcompact car with his full size pickup truck, sending George across traffic and into the light pole on the opposite corner of the intersection.

George is extracted from his vehicle by the Fire Department, and loaded up on the Air Ambulance where he is transported to the closest Level 1 Trauma Center.  MRIs are taken to assess the extent of his injuries.  He undergoes multiple surgeries to put his body back together, and misses three months of work as he recovers.  When he is finally able to go back to work, it is on light-duty, making 50% of his regular pay.

George is lucky.  George is alive, but he has run through all of his savings, and even with his private health insurance paying the vast majority of his medical bills, he still owes over $150,000.00 to the Fire Department, Air Ambulance service, the hospital, and the various surgeons, radiologists, anesthesiologists, and physical therapy professionals who have helped get him on his feet and back to work.

George is overwhelmed, and asks his attorney friend Bill to help him sort through the mess of what is now his life.  Bill gathers all of George’s medical bills and records, his pay stubs from before and after the crash, and the police department’s investigation file.  Bill files all the paperwork with John’s insurance company necessary to set up the claim and presents them with all of George’s losses from the wreck.

John is like most of us.  He is by-and-large a responsible person.  He works a steady job, and pays his bills on time.  But like most of us, he usually ends up with more month left over at the end of his paycheck.  So when Bill tells George that all John has to satisfy a judgment against him is his liability insurance policy, it comes as no surprise.    And like most of us, John’s insurance agent wrote the bare minimum policy the State of Texas requires: $30,000.00 per person bodily injury coverage.

But George is responsible.  He was brought up to plan for the worst, and so when he sat down with his insurance agent, he took out full coverage insurance, including $100,000.00/$300,000.00 in Underinsured/Uninsured Motorist coverage.

George shows his policy to Bill, who informs him that he could make a claim against his own insurance policy in the amount of $100,000.00, as that is the ‘per person’ limit for that policy.  $300,000.00 is the total ‘per incident’ limit  (available only if there are more than two people in the car.)  Slightly discouraged at finding this out, but glad to have at least $100,000.00 coming to him, he proceeds with his claim.

This is where it gets tricky.  You see, George thinks he is still in Good Hands.  He is under the misconception that his insurance company WANTS to put him back where he belongs, and that they are still on his side.  He is in for a rude awakening.

The first tactic his insurance company takes is to make a low-ball offer.  Say, $40,000.00.  They explain that according to Medicare pricing, the medical bills should have only been $70,000.00, and because they get a “credit” for the $30,000.00 that John’s insurance company has already agreed to pay, their offer of an additional $40,000.00 has “made him whole.”  The problem is, he still owes $150,000.00.

Never fear – Bill is here!  He will right this wrong.  He will champion the cause and teach Big Insurance who’s boss!  George hires Bill and he gets to work.

Bill sues George’s insurance company, claiming that George’s losses total more than $300,000.00 after considering his medical bills, his lost wages, the physical pain and mental anguish he has been put through, the physical impairment that he still experiences, and the uncertainty of any future medical care that George may need.

Bill hires experts to describe George’s line of work, and explain why he can’t do what he once did (and now earns much less because of his injuries).  He files pleadings with the court, serves the defendant, and sets up depositions of witnesses and defends George in his own deposition.  Bill obtains new sets of medical records and bills in proved-up form in anticipation of trial, and pays George’s surgeon the usual fees for giving a deposition to explain the medical necessity of George’s treatment.  Bill does such a great job, the attorney representing George’s insurance company calls Bill and suggests they go to a mediator in hopes of resolving the case.

George is confused.  His losses greatly exceed the policy limits of BOTH the liability policy ($30k) AND his underinsured policy ($100k).  Why doesn’t his insurance company just pay the limits?  $130,000.00 isn’t even enough to cover all of his medical bills.  How is he going to pay back what he owes, much less pay Bill’s attorney fees, and if there isn’t going to be anything left over for his lost wages and pain, then why is he even doing this?

Bill explains that even if he gets less than his medical bills, Bill will negotiate with the hospital to reduce its bills enough so that he can keep something for his lost wages and pain, and still cover the attorney’s fees and expenses.  Expenses!?  Oh yeah.  Bill has been spending money left and right on his case since he was hired, and those are separate from his contingency fee.  George really hopes that his insurance company will offer the full $100,000.00 limits at mediation, because the uncertainty is really making him nervous, and his wife is losing sleep over the credit card debt they charged up while he was off work.

The mediator tells George they are there to see if this case can settle before going to trial.  Trial!?  Why would they need to go to trial?  He has paid his premiums on time for the last ten years and has never made a claim.  Before John hit him, he had never been in an accident, much less caused one.  His insurance company is stalling, and he doesn’t understand why they don’t just “do the right thing.”  What is a jury supposed to decide?  Whether he has paid his premiums?  Whether the policy was in effect on the day of the crash?  If he is really hurt?  How much the medical bills are?

The mediator suggests that he make the initial demand to start the process.  That’s easy, $100,000.00 – the full policy.  The initial offer comes in, and George is floored.  $42,000.00?!?  They already offered $40k, and that’s why Bill filed suit!  Are they serious?  The mediator tells George that he has to negotiate.  He needs to make a new demand – he needs to keep the process going.  George is confused.  Why should he accept anything less than the full policy limit?

And this is when reality kicks George in the teeth.

The policy limit represents the worst day in court for George’s insurance company.  If after months of litigating this case, a jury comes back and says they owe George $2 Billion dollars, that amount is reduced to the policy limit, and they only have to pay $100,000.00.  Up to this point, they can never be forced to pay anything more than that amount.  Now, if they refuse to pay after a jury renders a verdict, they can be hit with treble (triple) damages, attorney’s fees, and other nasty costs.  But until a jury determines that the conditions precedent have been met to activate the coverage (liable party is underinsured) and appraises the losses to a specific amount (more than the amount he received under the liability policy), George’s insurance company hasn’t done anything “wrong” according to the Insurance Code nor the Common Law of Texas.

Bill and the mediator explain this to George, who sits with mouth agape as he realizes he will never get the offer in mediation that he needs/wants.  He becomes resolute – LET’S TAKE THEM TO COURT!

As George tears for the door with a blustery “I’ll see you at the Courthouse!”, Bill grabs his arm and calms him down.  For the next hour, the mediator and Bill explain “Trial Economics” to George.

“You see”, Bill says to George.  “I’ve spent $5,500.00 on this case so far, and I’m spending another $750.00 for the mediation today.  If this goes to trial, I’m going to have to spend another $15,000.00 on additional expert’s reports/depositions and trial testimony.  Not just that, but you will need to take time off work again for trial, and the soonest we can get on the Court’s trial calendar is nine months from now.”

George becomes disheartened as Bill and the mediator continue to go over all the additional costs he will face if he goes all the way through trial.  He quickly realizes that if what they are saying is true, there is no hope in ever seeing the full $100,000.00, despite what his losses are.

George just watches as Bill and the mediator hash out the negotiation, finally acquiescing to a final settlement of $70,000.00.  He is told “that’s a good settlement considering the trial economics”, but George is left with the sinking feeling that he just walked away from $30,000.00 bucks, and frankly, doesn’t see why he should be happy about it.

He was responsible, after all.  He paid his bills on time.  He thought he was in Good Hands…

This story plays out over and over in Texas, all stemming from a couple of cases in the early 2000’s.  The Courts have decided that it is no longer Bad Faith for a UM/UIM insurance company to require a Plaintiff to take his case all the way through trial to get the policy limits.  The Stowers Doctrine in Texas did away with this despicable practice on the Liability side, but the teeth have been completely removed when it comes to your own insurance company.

So for now, Trial Economics will reduce every First Party (UM/UIM) claim that approaches or exceeds the policy limits.

* While I unashamedly bash Allstate, the truth of the matter is that this plays out with ALL insurance companies for the same external reasons.

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