How Do Insurance Companies Determine Settlement Amounts?

When you are hurt in any kind of accident, you're going to expect a payout from an insurance company in most instances. At this point, you know it's essential to get a fair amount for your injuries and damages. However, to understand if you're getting a fair settlement, you need first to learn how insurance companies determine settlement amounts. Insurance companies use three main components to factor the amount they will offer in a settlement. These components are liability, damages, and policy terms. 

In order to get an insurance settlement, liability has to be determined. If the other party is judged liable, the next step is to assess your losses. From there, the insurance company will review the policy for payout limits and restrictions. These three factors are how insurance companies determine settlement amounts. 

How do insurance companies determine liability?

Assigning fault is perhaps one of the trickier aspects of an insurance claim. Laws vary by state, and practices vary by different insurance companies, so there's no blanket statement that can cover this question. So we'll look at a few different types of accidents that insurance usually covers.

Car accidents: When you're injured in a car accident, the fault lies with the person that caused the accident. Sounds simple enough, like if another driver has rear-ended you, the responsibility is pretty clear cut. However, when there are multiple parties with varying descriptions of the accident, things can get complicated. Ultimately, the car insurance company will determine who pays. 

Insurance laws are different in every state, but it generally boils down to two different kinds, "at-fault" states and "no-fault" states. No-fault states dictate that each driver depends on their own insurance for compensation for injuries through PIP insurance. Property damage, however, is covered by the person who is at fault in the accident. In at-fault states, the insurance companies determine who will pay and how much. 

Insurance companies also depend on police reports when it comes to determining liability. This is why we always advise our clients to call the police after any car accident. The police report may contain statements that indicate who is at fault based on their professional experience. When the police are called to the scene of an accident, they may also gather witness statements which can be extremely helpful. If a police officer issues a citation, this can be further compelling evidence to determine who was at fault, but not always.   

After a claim is filed, the insurance company will assign an adjuster to complete the investigation. The role of the insurance adjuster is to research the accident, examine statements and reports, look at the vehicle damage, and check the policy details. Afterward, the adjuster will conclude who was at fault or assign percentages of the fault and come up with a settlement amount.

Medical malpractice: Contrary to popular belief, the physician has very little to do with the case in a medical malpractice lawsuit. When you sue for medical malpractice, you're really suing the doctor's insurance company. Because of this, insurance companies often have in-house attorneys that will defend the doctor. Likewise, an insurance company will retain the services of expert medical witnesses to provide testimony to indicate the doctor behaved in a manner that represents the norms of his profession, and thus, is not liable for medical malpractice. 

If the injured party's attorney believes the case is worth $1.5 million and the policy only covers up to $1 million, the insurance company will likely reject a settlement and let it go to trial because, ultimately, they are only risking $1 million. Should the jury side for the doctor, they pay nothing. If the jury awards $1.5 million, the doctor is on the hook for the remaining $500,000, so it's no skin off their back. 

In a medical malpractice claim, the insurance companies have little incentive to settle when the damages are significant, or the facts of the claim could be called into question.

Negligence: As determined by law, negligence is the failure to use reasonable care resulting in damage or injury to another party. Negligence applies to all types of insurance, including home, life, health, and auto. In any kind of negligence claim, an insurance adjuster will be involved to determine the settlement value. Here again, the insurance adjuster will think about two things. What are the chances the plaintiff will win in a personal injury case, and how much a jury might award the plaintiff?

The insurance adjuster will start an investigation to get their policy holder's side of the story. Then they will investigate the claimant's side by looking into their history to uncover potential red flags. Like if they've ever filed any other personal injury claims, for example. From there, the adjuster contacts the claimant's attorney and goes through all documentation. They will be looking for any evidence of prior injuries or any missing information. Basically, anything that can help prove their policyholder was not negligent.  

Determining your settlement value

After an insurance adjuster does their due diligence to protect the insurance company from any type of fraud or unwarranted accountability, they will look at the damages. Damages are usually split into two categories which are economic and non-economic damages. Economic damages are usually straightforward because they are black and white, like medical bills, property damage, loss of earning capacity, lost wages, and other out-of-pocket costs. 

Non-economic damages are another category, and after an accident, some of the most significant losses may be non-economic. This is because these include loss of enjoyment of life, loss of consortium with their spouse, pain, and suffering, reputational damage, and loss of enjoyment of activities. For example, suppose someone suffers a spinal injury. In that case, they may lose the ability to walk, dance, and have intimate relations with their partner. 

For economic damages, the adjuster simply does the math. Non-economic damages are harder to quantify, so most adjusters use formulas or special computer software. However, determining how much your pain and suffering is worth should not be left up to software or formulas. Our experience is that the opinion of a jury is far more valuable when coming up with a number because people are sympathetic to other people's losses. 

Once the adjuster has come up with a number, the insurance company has the final say in what the offer will actually be. The first offer is usually far less than what the insurance company knows the claim is worth. It's an industry standard for adjusters to recommend less when they know the claimant has no legal representation. So if their offer seems low, you know it's high time to get yourself a personal injury lawyer to make things right again. 

How are personal injury settlements paid out?

When you're awarded a personal injury settlement, there are two ways to receive compensation. Either by a lump-sum payment or a structured settlement. If you agree to a structured settlement, the terms cannot be changed once accepted.

The advantage of a structured settlement is that over time, the structured settlement can gain interest, and it also ensures that you will have a dependable flow of money over the course of a specified period of time. Another advantage of a structured settlement is you can sell it. Suppose circumstances arise that require a lot of funds immediately. In that case, you have options to sell the structured settlement, however, at a loss of the total value. Whether you choose a lump-sum payment or structured settlement, the initial payout is tax-free. Still, any interest earned from a structured settlement is taxable. 

The advantage of a lump sum payment is, of course, your funds are available now, and you can make decisions on how you want to use them. Whichever type of settlement you consider, it's best to get the advice of an accountant or discuss your options with your attorney. 

Personal injury settlement amounts examples

Personal injury settlements are all unique and have many factors that determine the settlement amounts. The average personal injury settlement is $52,900. It's interesting to know that most personal injury claims are settled out of court. Still, for the four or five percent that go to trial, the outcome can be dramatic. Either you win big, or you go home with nothing. However, some personal injury claims have been awarded astonishing amounts, which have made the news. Here are some examples of the most significant personal injury settlements on record.

$206 billion from big tobacco: In a landmark case, 46 states joined together to go after the big lies that four major tobacco companies had hidden for years, smoking kills. The lawsuit was primarily to recover Medicaid money spent treating patients suffering from smoking-related illnesses.

$150 billion for the family of Robert Middleton: This was a horrific story of the sexual assault and attempted murder of a child by another child. The victim was lit on fire after the assault resulting in burns over 99 percent of his body. He later developed skin cancer and died, which prompted his parents to file a lawsuit against the other boy. A jury awarded them $150 billion in punitive damages.

$60 million for traumatic brain injury: A gas station manager suffered severe brain injuries from a derailed train that crashed into his office while at work. He was awarded $46 million in damages and an additional $14 million in interest.

$32.5 million for traumatic brain injury from faulty seatbelt: A man was hit in a head-on collision while wearing his seatbelt, but the seatbelt malfunctioned, and he was sent hurtling through the windshield. He sued the driver, Ford Motor Co., and the Mazda Motor Corp., and the jury awarded him $32.5 million.