As civil verdicts reach astronomical levels, motorists should wonder how much insurance is enough and whether a lawsuit that exceeds their policy limits could mean financial ruin.
Under state law, drivers must have insurance, but the minimum levels are set absurdly low. California requires liability insurance of just $15,000 per person or $30,000 per accident and property damage insurance of just $5,000. Those limits were set in 1967 and have never been updated or indexed for inflation.
I doubt you could crumple the fender of an aging Yugo and cause less than $5,000 worth of damage. And $15,000 would hardly cover medical costs if you are at fault in an accident that badly hurts or cripples someone.
"Most people don't understand how exposed they are," said Pete Moraga, an insurance specialist at the Insurance Information Network of California. "A lot of people only shop for the minimum coverage."
About 14% of motorists are insured at the minimum level, according to a survey by the organization conducted at The Times' request. If you rent and live paycheck to paycheck, that minimum level may be fine. But if you have any assets, particularly a house, you are seriously exposed, Moraga said.
Large verdicts, some in the millions of dollars, are becoming commonplace, even in garden-variety accidents that do not involve allegations of drunk driving or other criminal behavior. But very few motorists have the insurance to cover such verdicts.
Yet there is another side of this picture the insurance industry seldom discusses. Personal injury attorneys say they almost never bother to go after personal assets of defendants. Rather, they attempt to "open the policy," which is shop talk for forcing insurers to cover verdicts above the liability limits on a policy.
R. Rex Parris, an attorney in Lancaster who has won some astronomical verdicts in personal injury cases, said it is becoming more commonplace for verdicts and settlements to exceed the policy limits on a defendant's insurance. But it is usually paid by the insurer, not the defendant.
Parris estimates that 20% to 30% of cases that are taken to trial result in verdicts that exceed policy limits. He says his firm alone successfully "opens" about 30 policies every year. He recently won a $1.1-million settlement on a policy with a $100,000 limit.
Weighing the options
How does it work? Early in a case, Parris demands the full amount of the policy, giving the insurer 30 days to settle. If the insurer refuses to capitulate, then the insurer is on the hook for any later verdict that exceeds the limit. That's because the policy holder can always hold the company accountable for failing to negotiate in good faith and not getting rid of the claim within the policy limit when it had a chance. Parris said he is not permitted to tell defendants about such a game plan.
Policies are usually opened only after a verdict that exceeds the limit. At that point, the plaintiff's attorney can seek to have a defendant's claim of bad faith against an insurer transferred to the plaintiff, according to Hugh J. Grant, a Los Angeles civil defense attorney who represents insurers. That aligns the policyholder and the plaintiff against the insurance company.
Though such legal maneuvers can spare a defendant's assets in most cases, it is foolish to depend on this goofy process for protection. If a defendant has any significant assets, some plaintiff attorneys will go after them. If that happens, the defendant has two choices: pay or declare bankruptcy. As a result, most defendants go through many sleepless nights worrying about the outcomes of cases. Even Parris doesn't depend on the system. "In my case, I have $15 million of insurance just to be safe."
Though most people don't need such high coverage, the insurance industry does advocate every driver consider high liability limits, including umbrella policies that go up to $1 million.
Punishing to fit the crime
Other experts warn, however, that risks of financial ruin occur only when an accident involves intoxication or other criminal behavior.
"It can happen, but whether it does is another question," said Eric Blum, an Orange County attorney and pro tem judge in Superior Court. "I have never heard of a defendant losing a home. That would surprise me."
But juries deliver astronomical verdicts if they think there is reprehensible conduct by a defendant or a defendant's attorney. If you are eating a hamburger, applying makeup, listening to loud music or talking on a cellphone while you drive (or doing all at the same time), you may be holding yourself at a higher risk than you realize.
"Whatever burger Paris Hilton was advertising recently, if you take a bite and a piece falls in your lap, and then as you look down to clean it up while you are driving, you could be distracted," Grant said. "At all times, drivers are responsible for the safe operation of their vehicle and when they breach that duty, they are liable."
Ralph Vartabedian can be reached at firstname.lastname@example.org.