If you are the victim of a car accident and are wondering whether you should accept the other party’s offer to settle privately, without involving the insurances companies, you might turn to Google for advice. Unfortunately, many of the results that turn up are user comments on non-legal forums where non-attorneys attempt to explain the complications of a vehicle collision. Despite this dearth of expert advice, many people keep trying, driven by a fear that their insurance rates will be raised if they report the accident to the authorities.
While private settlements might seem like a convenient way to avoid the potential hassles of dealing with insurance adjusters and claims processors, these types of arrangements are almost always a bad idea; at least without some input from an experienced attorney. There are just too many potential complications of which many people may be unaware. The following are some examples of the types of problems you might encounter during a private settlement attempt.
Who’s at fault?
California follows what is known as the Pure Comparative Fault Rule. Under our system an accident victim can file a lawsuit against the person at fault, even if the victim partially caused the accident. For example, let’s say you're in a car accident with another driver. At trial the jury determines that you were
10% at fault for the accident and that your
total damages are $100,000. Under California law, you’ll be able to collect
90% of those damages from the other party; or
$90,000. Of course, you may also have to pay them for the 10% of damages you caused them.
The situation gets dramatically more complex in cases where the plaintiff is more than 50% at fault. Without qualified legal advice, you may not know for sure who is legally responsible for your injuries or for how much each party will ultimately be liable. Trying to guess can be costly.
Damage calculations
Estimating exactly what a settlement is worth, poses a challenge even for experienced attorneys. Questions abound, such as: will the injuries create a permanent disability, have the full extent of the injuries been discovered, and how lost wages or other income should, be calculated. There is a lot to consider, and this list barely scratches the surface. Without expert advice, your estimate of the damages or injuries might be way off the mark. Ultimately this means that you may be accepting an offer which grossly under compensates you for your injuries.
Insurance misconceptions
Many people considering a private settlement are worried that their insurance rates will skyrocket if they report an accident, even one in which they were not at fault. I wish that there was an easy way to settle this question but the truth is the situation is a bit more complicated. How an accident will affect your rates is determined by the particular insurance company involved. For some companies, rate increases are only assessed against drivers who are at-fault in a collision. In other situations the severity of the incident or the amount of damage is a critical factor. In today’s competitive insurance market, some insurers actually market policies that include accident forgiveness clauses designed to prevent rate increases associated with certain types of collisions. Ultimately you will have to check with your particular insurer for details. However, it is unwise to attempt a private settlement merely out of fear that your rates will go up.
Notification
While they may not raise your rates for reporting an accident in which you were not primarily at fault, not reporting an accident can give the insurance company a reason not to pay for any later claims you may decide to file for the incident. This is because most policies have a notification clause that requires you to give them a fair opportunity to duly investigate the situation. If you do not tell them in time, and the delay ends up hurting their ability to protect themselves legally, they may be able to avoid paying on your claim.
Don't forget the DMV
While not reporting an incident to your insurance company is a matter of choice – albeit with some consequences for choosing poorly –
reporting to the DMV is not optional. Under California law any accident with over $750 in damage or with any personal injury – no matter how minor - must be reported within 10 days of the incident. Both parties must file this report, regardless of fault. Furthermore, if any party was uninsured at the time of the incident, the DMV will still impose sanctions on that person including suspending their license for one year.
Dishonesty, double-dipping, and fraud
Even if you avoid the minefield presented by the above issues, there’s sometimes no accounting for human ingenuity. Without the benefit of deep insurance pockets, you may have a very difficult time actually collecting on your private settlement; especially if you agreed to take payments. Personal checks are often no good, and by the time you figure this out it might be too late to find the person. In every accident you should always take down insurance and driver’s license details from all parties involved, in addition to taking pictures of the scene and any damage. This way, even if you accept a private settlement up front, you’ll have some recourse if things go south later on.
Hire a lawyer
Hire an attorney! I know this might seem suspect coming from an attorney, but I hope I've convinced you that it’s good advice. Settling your accident privately is legally and financially risky and the motivations for doing so are weak at best. Get the legal help you need and avoid years of potential headache down the road. Your attempt to save a few bucks in the short term might end up costing you everything.