An aviation insurance company must fairly compensate those injured due to the negligence of one of its policy holders. Of course, in most cases, the insurance company’s financial responsibility is limited to the dollar limits of the insurance policy.
But not always.
When an insurance company unreasonably forces an aviation accident victim to take his case to trial instead of paying the policy limits to settle out of court, the rules change. In that situation, the insurance company may be required to pay whatever amount the jury decides would fairly compensate the injured person, even if that amount is more than the limits of the policy. That is because an insurance company who unreasonably refuses to pay its policy limits to settle a case is considered to be acting in "bad faith."
Here’s an example of how California insurance law works. Let’s say that a passenger is injured in an aircraft crash, and that the crash was caused by the pilot’s negligence. Let’s also say that the passenger has medical bills and lost wages or more than $250,000, but that the limit of the pilot’s insurance policy is only $100,000. If the injured passenger demands from the pilot’s insurance company $100,000 to settle out of court, the insurance company should pay it. After all, it would be unreasonable not to pay that amount given the harm the passenger has suffered. But what if the insurance company decides to play "hard ball" and force the case to trial? If a jury renders a verdict against the pilot of, say, $500,000, the insurance company may be required to pay the entire amount. It is no defense that its policy was for only $100,000.
This doesn’t mean that the insurance company must automatically fork over the policy limits to the accident victim in every case. Rather, the insurance company must pay the limits to settle only when it would be unreasonable not to. In short, if the insurance company decides to play hardball with the injured party, then the insurance company can be held financially responsible for the consequences.