This is a continuation of our last post. We were talking about a case from outside of Florida that began with a fraternity hazing incident. A boy died during the hazing, and his parents sued the fraternity and four members and pledges for wrongful death.
The insurance company that covered both the frat and its members and pledges defended the claim and paid the settlement — as it was required to. An insurer must provide a legal defense and is obligated to pay a judgment against the policyholder (within policy limits).
After the wrongful death claim settled, the insurance company turned to the boys — the insureds — and demanded they pay $50,000 to reimburse the company for their portions of the settlement award. It’s a “man bites dog” tactic.
The insurance company is trying to subrogate against its own policyholders. But the fraternity has paid premiums to the company to protect the organization and its members in situations like this.
The strategy is certainly a brow-knitter. Imagine someone is walking down the sidewalk in front of your house. He trips over your kid’s Big Wheel, falls and breaks his arm. You file a claim with your property insurance company. The total cost of the injury doesn’t even come close to your policy limit. The next day, your insurer asks you to reimburse it for half the claim payout, because, after all, it was your fault that the Big Wheel was in the way. It doesn’t make sense.
Attorneys for the boys in this case say the company has breached its implied duty of good faith and fair dealing. One added that the insurer’s action is practically the definition of bad faith, and he plans to file a counterclaim.
The fraternity brothers reached a settlement with the insurance company in April. Though the exact terms were not disclosed, two boys’ say they did not pay money to the company.
Source: Associated Press, “Insurer settles suit with former USU frat members,” 05/02/11Share