The Effects of Third-Party, Bad Faith Doctrine on Automobile Insurance Costs and Compensation

by Angela Hawken, Stephen J. Carroll, Allan Abrahamse

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The question of whether an automobile accident victim should be allowed to bring a claim for punitive damages for unfair settlement practices against another person's liability insurer — a so-called third-party, bad faith suit — has become an important policy concern. This book examines the compensation that automobile insurers paid to accident victims in California during a period, 1979 to 1988, when such punitive damages claims were permitted. This book looks at the effects of the adoption and subsequent rejection of the Royal Globe doctrine, which allowed third-party bad-faith suits, on compensation and costs of bodily injury claims. The authors find that the adoption of Royal Globe triggered sharp increases in both the average bodily compensation payment and the relative frequency of bodily injury claims in California relative to the other tort states. In contrast, the elimination of Royal Globe dramatically reversed these trends.

Table of Contents

  • Chapter One

    Introduction

  • Chapter Two

    The Effect of Royal Globe on Claim Severity and Frequency

  • Chapter Three

    The Effect of Royal Globe on Auto Insurance Costs and Compensation

  • Chapter Four

    The Effect of Royal Globe on Attorney Representation and Claimed Economic Losses

  • Chapter Five

    Summary and Conclusion

The research described in this report was performed under the auspices of RAND's Institute for Civil Justice.

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