Policy-Limits Demand, Multiple Claimants, and the Umbrella Business-Use Exclusion
Elena has a personal auto policy with bodily injury limits of $100,000 per person/$300,000 per accident and property damage of $50,000. While driving to a client meeting, she runs a red light and causes a three-car collision. Claimant A has $250,000 in medical bills and a clear liability case; B has $150,000 in injuries; C has $120,000 in soft-tissue injuries. A's attorney sends a 15-day demand for the $100,000 per-person limit, offering a full release of Elena, and warns that any excess judgment will be pursued against her personally. The adjuster delays because B and C have not submitted demands, and because Elena's employer may owe coverage. Elena has $180,000 of home equity and a $1 million personal umbrella policy. The umbrella has a $250,000 self-insured retention, excludes business use, and Elena was driving to a client meeting for which she receives a monthly auto allowance. On day 16, A sues. A jury later returns a $700,000 judgment against Elena.
1. Evaluate the auto insurer's handling of A's policy-limits demand and its bad-faith exposure.
Read the worked answer
The insurer faces a classic duty-to-settle problem. Liability is clear, A's damages exceed the $100,000 per-person limit, and A offered a full release of Elena for that limit within 15 days. A reasonable insurer must give the insured's excess exposure at least as much weight as its own interest in saving money. Waiting because B and C have not made demands is weak: the insurer can evaluate known injuries, reserve the remaining $200,000 of the per-accident limit, and attempt to settle all three. It can also seek an interpleader or a global mediation if the claimants conflict. The 15-day deadline is short but not impossible; the insurer should have documented its analysis and responded. If it unreasonably rejected a within-limits demand and exposed Elena to a $700,000 judgment, it risks bad-faith liability for the excess. The fact that the employer may owe coverage does not excuse the auto insurer's separate duty to its insured.
2. How should the $300,000 per-accident limit be allocated among A, B, and C, and what should the insurer do about the competing claims?
Read the worked answer
A is capped at $100,000 by the per-person limit. B is also capped at $100,000, even though B claims $150,000. C is capped at $100,000, although C claims $120,000. A global settlement at $100,000 each would exhaust the $300,000 per-accident limit and treat the claimants equally at the policy caps, but C may resist because C's claimed value is higher. The insurer should not simply pay A and ignore the others; it should attempt a mediated global settlement, obtain releases, and document why any allocation is reasonable. If C refuses, the insurer may need to file an interpleader and let a court allocate the fund, or settle A and B while defending C, but it must consider the risk of a later excess judgment against Elena. There is no universal formula; the insurer's duty is good faith, not mathematical equality. It should also reserve rights and keep Elena informed.
3. Does Elena's umbrella policy respond to the excess judgment? Analyze the business-use exclusion and self-insured retention.
Read the worked answer
The personal auto policy pays at most $300,000, leaving $400,000 of the $700,000 judgment. The umbrella may not respond because it excludes business use, and Elena was driving to a client meeting while receiving a monthly auto allowance. That fact pattern suggests regular business use, not a casual commute, so the insurer will likely assert the exclusion. Even if coverage applied, the $250,000 self-insured retention must be satisfied before the umbrella pays, and the umbrella may require the underlying auto limits to be exhausted first. The retention and exclusion together leave Elena personally exposed. She should also tender the claim to her employer's commercial auto insurer, because the employer may have coverage for the client meeting and the auto allowance. If the employer's policy is primary, it could reduce the gap. The auto insurer's bad-faith exposure and the umbrella's exclusion are separate issues; a bad-faith recovery may be Elena's best route to the excess, but it is not guaranteed.