Why Insurance Companies Routinely Deny or Lowball Car Accident Claims

In 1988, the California Supreme Court decision in the case now famously known as Moradi-Shalal invariably diminished California car accident victim’s rights. The Moradi decision essentially stated that an innocent driver in an automobile accident may not file a lawsuit against the insurer of the at-fault driver. The innocent driver, who is known as the “third party” claimant is barred from suing the insurance company of the at-fault driver, known as the “first party” insured. The Moradi decision essentially overturned a 1979 California Supreme Court decision, known as Royal Globe, which allowed car accident victims to initiate a claim against the another person’s insurance company if the insurance company had engaged in unfair claims and settlement practices. In the legal world, this sort of cause of action is termed as insurance bad faith, and the effects of limiting third party bad faith lawsuits against insurance companies have proven devastating for California consumers. Bad faith is defined as the breach of the implied covenant of good faith and fair dealing found in every contract. It requires that the parties involved deal with each other fairly, honestly, and in good faith. The Moradi decision concluded that no privity existed between the third party claimant and the insurance company, and therefore the third party was barred from filing a lawsuit against the insurance company. However, what the Moradi decision truly accomplished was creating a huge imbalance in the bargaining power between the innocent third party and the insurance company. After 1988, insurance companies were basically allowed to deny or lowball third party claims without the threat of lawsuit or consequence. What effectively happened was that insurance companies frequently started denying claims at will, even in situations where liability was clear. At best, the evil insurance industry adopted a pattern of lowballing claims. That is why accident victims routinely receive settlement offers far below even their own costs. The added leverage acquired by the insurance industry forced many third party claimants to simply give up any battle and simply pay any accident related costs out of their own pockets.  The insurance industry won. And if you think that the 3rd party claimant is the only one suffering, think again. The inability to file suit against an insurance company forces accident victims to file suit directly against the at-fault driver. While the insurance company does have a duty to represent their insured, a lawsuit often causes long and permanent damage to the insured. In situations where the case goes to trial, an action against the insured more likely than not will lead to a judgment which will adversely affect their credit score for up to 10 years. That doesn’t even account for all the time and energy spent on going to depositions, trial, hearings, etc. To make matters worse, insurance companies will regularly ignore their insured’s pleas to settle the case, which is in their best interest. The fact is, insurance companies don’t really care about their clients either. Oh, and if you believe that insurance companies will pass over the money they save from claim payments, think again (I highly doubt that even the most naive among us believe that insurance companies do anything for the interest of the consumer). Insurance premiums have continued to rise, and California consumers continue to pay some of the highest rates in the country. All the Moradi decision did was increase the profits for insurance companies at the expense of the innocent consumer.