Insurance: that annoying but potentially beneficial thing we pay good money for and hope to never use. Insurance can protect your car, your business, your family, your home and more. The downside? It can often put a big red target on your back that says “sue me.”
It’s the old minor fender bender story. You’re driving down the street and the person driving the car in front of you slams on his brakes. You can’t avoid the collision. You get out of the car, check everything, see that the damage to the cars is very minor and no one is injured, exchange insurance information and walk away. The next thing you know, the person in the other car claims he has multiple physical injuries and threatens to sue your insurance company on your behalf. You are furious because you know these claims are false, and now your insurance rates will go through the roof.
Your insurance company responds by settling the claim out of court for a lump sum to make it go away, even though the claim is not legitimate. This is just one example of how having insurance can serve as a target instead of a shield. Imagine the possibilities if you are a business owner with an E&O policy.
Every day, thousands of frivolous lawsuits are filed and many plaintiffs are unfairly rewarded even though their allegations are not true, simply because these lawsuits are brought as a means of extracting a settlement from a “deep pocket” (i.e., an insurance company). However, this trend may be changing.
Recently, a judge in California ruled in favor of a real estate agent who found himself in the middle of one of these frivolous lawsuits. (Peake v. Underwood) The agent listed a home for sale and a home inspection was conducted. After the sale closed, the buyer found signs of a water leak that had rotted the subfloors. She sued the seller’s agent, claiming he failed to ensure that the property was properly inspected and failed to disclose information about the true condition of the property (including water damage) that he knew or should have known. The buyer sought damages in the amount of $365,000.
While the case was pending in the trial court, the agent’s attorney filed a motion for sanctions against the buyer and her attorney, arguing the buyer’s claims had no factual or legal basis and were frivolous. The trial court agreed, finding the undisputed facts showed the agent did nothing wrong. He provided the buyer with disclosures and reports (including photographs) that disclosed the existence of prior drainage issues and damage to the subfloors, and therefore, the buyer knew about these problems and should have further investigated them. The court also found that even though the buyer was aware of the factual and legal flaws in her claims against the agent, she maintained her lawsuit against him in bad faith, warranting $60,000 in sanctions and dismissal of her lawsuit. The buyer appealed, and the Court of Appeal, Fourth Appellate District, Division One (San Diego) affirmed the trial court’s decision.
There are a few lessons to be learned from this case:
1) If you are contemplating filing an easy “get rich quick” lawsuit, check your facts and think long and hard about the possible repercussions. More and more judges are refusing to tolerate frivolous lawsuits that take up their valuable time, clog the court system and waste tax dollars. They are not afraid to award sanctions for lawsuits that are totally without merit and used primarily as a way to extort a settlement from the defendant (or his/her insurance company).
2) If you believe you are being unjustly sued based on allegations that have no basis in law or fact, give a copy of the attached opinion to your insurance company, or contact Mark Stavros, Esq. (firstname.lastname@example.org; 858-454-7997), the attorney who successfully defended the agent in the frivolous lawsuit discussed above. In the meantime, document and save everything! If your reports or statements are ever called into question, or (worst case scenario) you end up as a defendant in a lawsuit, your records, plus a great insurance policy, will save you from the possibility of financial disaster (not to mention loss of reputation). When you do your job thoroughly and correctly, there is no such thing as too much documentation.
Insurance companies have had a tendency to follow the path of least resistance, offering settlements to make claims go away as quickly as possible. The people making these claims know this and see it as a way to make easy money, while causing your rates to skyrocket. If you are ever faced with a situation in which you know you are in the right and have documented proof, stand up and fight for your business, your house and your family by asking your insurance company not to settle. And if you find yourself in court, discuss the possibility of asking for sanctions. Let’s put an end to frivolous lawsuits.
Not sure where to start? Contact FREA at email@example.com or 888-820-5700. We offer expert risk management support to all our Professional Members at no additional cost.