Three Claimants, One 25/50/20 Policy
A Nevada auto policy has liability limits of 25/50/20 ($25,000 per person, $50,000 per accident, $20,000 property damage) and medical payments coverage of $5,000 per person. The insured rear-ended a stopped car at a Las Vegas intersection and told the officer he was checking a text. Three people claim injuries. Driver A: $38,000 medical bills, $12,000 lost wages, demand of $25,000 policy limit. Passenger B: $14,000 medical bills, demand of $20,000. Driver C: $6,000 medical bills, $6,000 vehicle damage, demand of $10,000. A's attorney sends a 10-day policy-limits demand and threatens bad faith. B and C have not retained counsel. The insured has $1,000 in available assets and asks you to 'pay A the limit and be done.' He says he cannot afford a judgment. The policy has no umbrella or excess coverage.
1. Explain how the per-person and per-accident limits apply and why paying A's demand immediately may be problematic.
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Liability limits are 25/50/20. A's damages ($38,000 medical + $12,000 wages = $50,000) exceed the $25,000 per-person limit, so A can recover at most $25,000 from the liability coverage. B's $20,000 demand and C's $10,000 demand are each within the $25,000 per-person cap, but all three claims together exceed the $50,000 per-accident limit: $25,000 + $20,000 + $10,000 = $55,000. If the insurer pays A the full $25,000 immediately, only $25,000 remains for B and C, whose combined demands are $30,000. That creates a risk that B or C will claim the insurer favored A and failed to treat all claimants equitably. The insurer also faces a policy-limits demand from A with a 10-day deadline; if it unreasonably rejects a demand within limits and an excess judgment follows, the insured may assign a bad-faith claim. Property damage to C's vehicle ($6,000) is within the separate $20,000 property-damage limit. MedPay is separate and may pay medical bills regardless of liability, but it does not resolve the liability allocation.
2. Recommend a settlement and communication strategy that protects the insured and the insurer from bad faith.
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First, complete a liability and damages evaluation for each claimant, including medical records, wage loss, and comparative negligence. The insured admitted texting, so liability is clear, but A's own fault may be argued only if supported. Set reserves for the full $50,000 liability limit and the property-damage limit. Communicate with all three claimants in writing, disclose the limits, and ask for global settlement demands. Do not pay A's policy-limit demand on the 10-day deadline without addressing B and C. Options include a global mediation, pro rata allocation, or an interpleader if the claimants cannot agree. Obtain releases for all bodily-injury and property-damage claims. Explain to the insured that the insurer must protect all claimants and that his $1,000 in assets makes an excess judgment a personal risk. Document the evaluation, the reasons for any rejection of A's demand, and all communications. If a claimant refuses to cooperate, consider a declaratory judgment or interpleader rather than unilaterally favoring one claimant.