The result of the inter-company arbitration between the insurers has no effect at all in personal injury cases involving the drivers and passengers. It applies only to property damage disputes and will never come up elsewhere.
You can choose who and how to sue, but you may end up losing a part of your recovery if you leave out a responsible defendant, since the person you do so is entitled to point to non-parties and argue that they were at fault, and if they are successful, your recovery may be reduced in proportion to the fault a jury allocates to the absent party. The defendant that you do name may end up suing your relative anyway.
These are good questions that I think you will need a lawyer to sort out - I encourage you to find one on Avvo.
I concur with Attorney Fiol.
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These are good questions regarding how to apportion fault. As was previously mentioned the property dispute between the insurers should not affect your claim. For your second question, yes the injured passenger can choose to only sue one of the drivers. However, you should consult with a local attorney regarding the division of fault amongst the drivers. They will be able to explain exactly how such a suit which omits one of the guilty parties would likely conclude. Best of luck.
Inter ins arb has no effect on court case, and wont come into evidence. If you sue only 1 party, that party can cross claim against your relative for indemnity. if you omit a deft and the jury apportions a percentage of fault against the missing party, you will lose a portion of your collectible damages. if you relative has ins, while you are naming the relative as a deft, you are not necessarily trying to get money from his pocket, but from his ins co. if he cares about you, he would want his ins co to pay you for your injuries.
The arbitration between the two insurance companies is not binding on your personal injury claim, or that of your passenger and it is not something that can or need be appealed/overruled by a court. However, that arbitration result will inevitably affect how the respective insurance companies view liability on any personal injury claims. It can be difficult to change the mind of an insurance adjuster (and company) who is armed with a "no liability" arbitration decision, but it can be done. A good attorney will have the tools to compel the insurer to change its mind. As for your second question, the passenger can frankly sue whoever she wants, but whether there is coverage for the claim made against the "relative" by the passenger depends upon several things, most importantly whether the passenger lived with the relative at the time of the accident. If this is true, then most likely the passenger's claim would not be paid by the relative's insurance, based upon a standard exclusion in the policy. A good attorney can help you sort this through and make certain that the injured party accesses all available insurance coverages.
In a car accident lawsuit, fault is a question for the jury. Insurance and any decisions related thereto are typically inadmissible in Court. In the event, you choose not to file suit against a relative, that does not prevent the defendant from adding that defendant or submitting an apportionment of fault instruction against the non-party relative. If the remaining driver or relative is not insured, you would have an uninsured motorist claim. Check with a local lawyer to see if this represents the laws of your state.