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Automobile Liability Insurance

March 2008
Automobile Liability Insurance

By Ambadas Joshi, Esq. and Prakash Patel, Esq.

Although many people do not associate car insurance with asset protection, the amount of insurance could determine your financial future if you are involved in an automobile accident. As experienced attorneys, we have seen how carrying insufficient automobile liability insurance can devastate a family’s financial future and cause them to lose their house, their bank accounts, and even force them into bankruptcy. Consider the following example:

Mr. and Mrs. Patel were a hard working couple earning about $150,000 per year. They had approximately $100,000 of equity in their home and had $20,000 in non-retirement accounts. The Patel family owned two vehicles, and all of the assets including the vehicles were in Mr. Patel’s name. They had automobile insurance covering the vehicles. The automobile liability insurance provided the required minimum liability coverage per vehicle of $25,000 per person/$50,000 per single accident /$25,000 for property damage to someone else’s property.

One day, Mrs. Patel was driving down the highway when she became distracted and caused an automobile accident. The person Mrs. Patel struck claimed she was significantly injured and had incurred over $40,000 in medical bills. The Patels initially believed that because Mrs. Patel did not have any “assets,” the injured party would be satisfied with their liability policy limits of $25,000 and settle her claim for that amount.

Unfortunately for the Patels, Georgia law allows for injured parties to sue both the person causing the accident and the owner of the vehicle under the “family purpose” doctrine. This doctrine generally allows for vehicle owners to be sued if 1) the owner gave permission to a family member to drive the vehicle; 2) the owner relinquished control of the vehicle to the family member; 3) the family member was driving the vehicle; and 4) the family member was engaged in a “family purpose.”

In our example, the injured party, instead of accepting the $25,000 insurance policy limits to settle her case against Mrs. Patel (because she has no assets other than her wages), now can allege that Mr. Patel is also responsible to her under the “family purpose” doctrine. This now effectively places the family assets at risk for forfeiture. Although the Patels’ assets are technically not at risk until there is a judgment rendered against them, it makes settling the case (prior to the injured party filing a lawsuit) within the policy limits next to impossible. More often than not, individuals in this situation decide to “chip in” their own personal money to avoid the potential for a judgment that may subject them to additional personal financial exposure. If settlement fails and a judgment is entered against the Patels, they would be personally responsible for paying any amount over their insurance policy limits. The injured party could garnish wages, empty out the non-retirement accounts, place a lien on the house, or even foreclose on the house (depending on the amount of the judgment). Options might be limited and the Patels could be looking at filing bankruptcy to avoid paying the judgment.

What can you do to avoid or minimize the chances of this catastrophe happening to you? You can simply purchase more than the minimum automobile liability coverage. Different insurers have different limits that you can purchase. You will most likely have the option of purchasing insurance with bodily injury liability limits of $50,000 per person and $100,000 per accident; $100,000 per person and $300,000 per accident; or $250,000 per person and $500,000 per accident. You will also have the choice to purchase different liability limits covering property damage claims.

Because bodily injury claims present you with the most personal exposure, you should carefully consider how much insurance to purchase. Keep in mind not only the high cost of medical treatment, but that $50,000 or even $250,000 may not provide sufficient coverage depending on the type and severity of the accident. For individuals with assets such as a house or bank accounts, the amount of insurance should be an important part of your financial planning. You can also opt to purchase an “umbrella” policy which provides additional coverage—usually starting at an additional $1 million over the underlying auto and homeowners’ policies. Of course, greater limits can be obtained based on your respective situation.

Please remember that the information contained in this article is meant to be informational only and should not be construed as legal advice. Each insurance policy and each situation is different and should be evaluated accordingly.

Joshi & Patel, LLC is a general litigation law firm providing a broad range of legal services to businesses and individuals in the areas of personal injury, business disputes, contract interpretation, and insurance coverage.

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