People, everywhere, purchase insurance in order to protect themselves against monetary losses resulting from personal injuries or property damage. Insurance can also provide protection from potential lawsuits that may result when an injury to a person or damage to a property occurs. The policy holder pays premiums in exchange for the insurer taking on certain duties in return. The insurer’s duties include providing coverage, abiding by the terms of the policy, and promptly paying any valid claims that are included in the coverage policy. Insurers also hold the duty of good faith and fair dealing.
However, there are cases where an insurance company fails to satisfy these requirements and breach the duties, whether stated or implied, that are owed to either the policy holder or even a third-party claimant. This is where bad faith lawsuits can arise. Insurance bad faith can pertain to any type of insurance policy including auto insurance, life insurance, health insurance, homeowners’ insurance, or any other type of contract. Insurance bad faith is when an insurer fails to uphold their contractual obligations to its policyholders or a third-party claimant. This could include refusing to pay a valid claim or failing to investigate and process a claim within a reasonable time period. Insurance companies are also considered to be acting in bad faith when they distort the language in an insurance contract, when they fail to communicate policy terms and exclusions at the time of purchase, or when they make unsupported requests for a policy holder to prove a loss. These tactics are used in order to avoid or skirt the contractual obligations imposed by the insurance policy.
Trying to find evidence that supports a claim denial and ignoring valid evidence supporting the claimant’s reasoning for submitting a claim is also considered acting in bad faith. When an insurer does not respond to a claim quickly and efficiently, purposely or not, it is considered an act of negligence and in bad faith. In order to avoid being considered acting in bad faith, an insurance company must provide reasoning as to why they refuse to pay out a claim or only partially cover it. A policy holder’s disagreement with an adjuster’s valuation of the loss amount is not considered bad faith, unless the adjuster refuses to provide a legitimate basis for the decision. A simple and fixable mistake is not considered bad faith either.
State laws referring to bad faith practices, also called Unfair Claims Practices, are set out to protect policyholders and claimants from deceitful acts by insurance companies. When an insurance company acts in bad faith, certain laws may require the company to compensate the victim of the insurance company’s bad acts. Victims of bad faith can be compensated above and beyond the damages they suffered which led to the original claim. This compensation can include out of pocket expenses, any borrowed funds to cover damages, missed work, attorney fees, and other economic losses. If an insurance company acts with blatant deception and negligence, a jury may add punitive damages to the compensation owed to a victim of bad faith, in order to punish the insurer for their misconduct and prevent them from acting in bad faith again. If the insurer has simply made a mistake, the solution would just be to pay the claim.
If you have had a claim unfairly denied or fell victim to any of the unfair claims and settlement practices outlined above reach out to our team of lawyers today!