Auto Insurance Coverage Scenario

[ACN]

I have two theoretic situations that I was hoping to get some answers for.

 

Scenario 1:

Dr. Financially Independent at age 45 is driving in his SUV on the highway.  Dr. FI briefly glances down at his phone (has a perfect driving record), but in this quick moment, he doesn't realize traffic has stopped ahead of him abruptly and he rear ends another car, driven by a restrained college student, who unfortunately suffers a complete cervical spine injury.  She will need lifetime medical care and support 24/7/365.

• In this type of situation, even with the best auto coverage, will auto insurance pay for the medical care for her lifetime?


• Are there "limits" to what the auto insurance will pay or cover for her lifetime?


• Can the family sue the auto insurance company for more $?


• Can the family sue Dr. FI, since he has a high net worth with $2 mil in houses, $3 mil in taxable savings, $2 min in retirement accounts?
  
  
  
  • Which of these accounts are safe?
  
  
  • Would an umbrella policy help cover him in this situation?
  
  
  • Can the insurance company come after Dr. FI for his net worth to defray their costs?
  
  
  
  

 

Scenario 2:

Exact same scenario, however, this time on Dr. FI auto insurance policy, he also has his parents on his policy as they live at home with him.  His parents made some wise choices and have a high net worth ($10 mil), while Dr. FI is actually far from FI and is basically broke and his parents even own the house he lives in.

• Since his parents have a high net worth, own the house, ect. can the injured family sue his parents since they are the primary policy holders?


• Would it change if Dr. FI was the primary policy holder and his parents were just listed as household drivers?

[jfoxcpacfp]

I hope one of our attorneys will chime in. Not sure if we have any property insurers participating on the forum. This is a stressful scenario and, I hope, not something you have had personal experience with.

Auto insurance will pay out to the limits as stipulated on the policy, assuming they don't go to trial. Next comes umbrella payout (hopefully, there is umbrella) and my understanding is most settlements are not pursued after the limit of the umbrella policy. Whether the house is at risk is state-specific. 401k's and other qualified plans are safe. TIRA and Roth protection is state-specific.

An attorney or insurance agent will have to address scenario 2.

[beagler]

Don't know much but:

Anyone could sue anyone else for any amount over an injury.

Any transfer of assets after an incident occurs is potentially considered fraudulent or at least invalid.

I'd worry more about senior drivers and teenagers in terms of accident rates. I don't think giving parents all the assets is a good idea (if that's what you are implying) - there's estate tax when they pass and potential nursing home costs.

Have a good amount of umbrella coverage. Don't use cellphone when driving. Drive defensively. Teach your teens the same.

I am hoping for robot self-driving cars when my kids are teens. I'd use it too for convenience and liability reduction.

 

 

 

[Craigy]

Insurance policy pays its limit. If you have a $5M umbrella, you're not going to get more than $5M out of it.

If this is a big (future) concern, you need to hire an estate planning attorney in your area to help you out.  Dropping a few hundred or a grand for some quality advice should give you a lot of peace of mind.  If it's a current concern you might need to speak with an attorney who handles bankruptcy.  Who pays what, what is and isn't exempt, is all very state specific.  Your liquid cash and investments are probably not going to be safe.

Also, if this scenario is a big fear of yours, splash the cash on cars with collision mitigation, lane departure, etc. to lessen the likelihood of rear ending someone.  Doesn't have to be a Mercedes or Tesla, every Toyota comes with radar cruise and safety sense, and it's an option on most Hondas.

Also also, don't have your parents live with you.  

 

[jbmitt]

Hi there,

I try to keep my eyes open for these questions on the forum.  I must have missed it.  I've spent 10 years handling claims and come across similar scenarios that you have posed.  The key takeaway for high income/net wealth folks is having high liability limits.

Scenario 1:

• In this type of situation, even with the best auto coverage, will auto insurance pay for the medical care for her lifetime? The limit of liability is the maximum that your insurer will pay.  There are different ways this is shown.  It could be a 'split limit' such as $100k/$300k meaning the most they will pay for any one injured person is $100k and the most they will pay for all injured people is $300k.  So the college kid would only get $100k despite having $300k in coverage and injuries substantially in excess of this.  Another way this is displayed is as a combined single limit 'CSL' often $500k or $1M.  These doesn't limit coverage per person, but often times includes property damage.  So the injured college student and their car would be paid out of this limit.


• Are there “limits” to what the auto insurance will pay or cover for her lifetime? Yes, the limit of liability is the maximum, regardless of the duration of treatment.  Typically an insurer will seek to resolve a claim as soon as the undisputed and known damages are believed to be in excess of the limit of insurance.


• Can the family sue the auto insurance company for more $? This is a vague question, as you are not clear as to which family you are referring to.  There are a couple of ways this can happen, and this is specific to certain states.  I believe the term you are thinking of is direct action, where the injured party directly sues the insurance for the at fault party.  This is less common.  More commonly the injured party sues the at fault party and the at fault party involves their insurance company. 


• The issue of Bad Faith can also result in suits against the insurance company from either party.  In some places, Third Bad Faith is allowed and the injured party can allege that the insurer intentionally delayed resolution or forced them to file suit for resolution.  If they can prevail, damages in excess of the limit of insurance can be paid, and it is typically paid by the insurer.  The at fault party might agree to a settlement with the injured party, and then assign their right for a first party bad faith claim against their insurer if there are delays, or an opportunity and subsequent refusal to settle the claim within the available limits.


• Can the family sue Dr. FI, since he has a high net worth with $2 mil in houses, $3 mil in taxable savings, $2 min in retirement accounts? Yes, depends on location.  Insurance typically will try to resolve within the limits of insurance and won't usually pay unless there is a release.  If you are liquid above your limits of insurance and the injuries are in excess of the limits of insurance, you will likely be sued for whatever is over and above insurance.
  
  
  
  • Which of these accounts are safe? Not my area of expertise.
  
  
  • Would an umbrella policy help cover him in this situation? Yes, umbrella coverage is typically very cheap for the amount of coverage provided.
  
  
  • Can the insurance company come after Dr. FI for his net worth to defray their costs? Depends on which insurance company.  Yours typically will not.  If the other party makes an Underinsured (UIM) or Uninsured (UM) claim against their own policy and has higher limits of insurance than your insurance, they make attempt to recover the difference between what they paid and your insurance paid.  This gets tricky, because their insurance may have to substitute your limits of insurance, plus offer their coverage in order to keep you and your insurance involved in litigation.  It can get risky for them, unless they believe that you are liquid and have collectible assets in excess of the available insurance.
  
  
  
  


• Scenario 2:Exact same scenario, however, this time on Dr. FI auto insurance policy, he also has his parents on his policy as they live at home with him.  His parents made some wise choices and have a high net worth ($10 mil), while Dr. FI is actually far from FI and is basically broke and his parents even own the house he lives in.
  
  
  
  • Since his parents have a high net worth, own the house, ect. can the injured family sue his parents since they are the primary policy holders? Yes, you commonly see this with parents and teens as 'negligent entrustment' meaning they allowed their vehicle to be used in a way that it injured someone.  A smart plaintiff attorney will go after the driver, the owner of the vehicle, the named insured on the policy, etc. 
  
  
  • Would it change if Dr. FI was the primary policy holder and his parents were just listed as household drivers? No, it's usually frowned upon if people tried to hide behind the semantics of the policy.  The appropriate solution is individual policies and high limits.
  
  
  
  
  
  


• Let me know if you have any additional questions.  I've got an insurance claims background and my partner is an ob/gyn so I understand both sides of these questions.