Bad Faith Insurance Claims

A bad faith lawsuit is a legal action taken by an insured (policyholder) against their insurance company for acting in “bad faith.” Essentially, this means the insurer has failed to fulfill its obligations according to the terms of the insurance policy or has intentionally denied or delayed a claim without a reasonable basis.

The concept of “bad faith” in insurance law encompasses several wrongful practices by insurers, such as:

1. Unreasonable delay in processing a claim.
2. Denying a claim without a valid reason.
3. Failing to conduct a proper investigation into a claim.
4. Not defending a policyholder in court when required by the policy.
5. Misrepresenting the terms or coverage of a policy.
6. Offering significantly less money to settle a claim than what it is actually worth.

What Does Bad Faith Mean in Insurance?

In the context of insurance, specifically general liability insurance, “bad faith” refers to the insurer’s breach of its duty to the insured. Every insurance contract contains an unwritten, implied promise of “good faith and fair dealing,” which is a standard that requires both parties to not do anything that will injure the other party’s right to receive the agreement’s benefits.

For an insurer, acting in “good faith” means that it must handle and process claims in a timely, honest, and thorough manner. When an insurer violates this duty, it is acting in “bad faith.”

How Can I Tell if My Insurance Company Acted in Bad Faith?

Determining if an insurer has acted in bad faith can be tricky, as it often involves understanding the fine print of your policy and the legality of insurance practices. Here are some signs that an insurance company might be acting in bad faith:

1. Denying a claim without explanation: If your claim is denied without a clear reason, the insurer may be acting in bad faith.
2. Unreasonable delays: If the insurer takes an excessively long time to investigate or resolve your claim without a valid reason, it might be acting in bad faith.
3. Lowball settlement offers: If the insurer offers to settle for an amount that is significantly lower than the reasonable cost of your claim, it may be acting in bad faith.
4. Failing to communicate: If the insurer is not responding to your communications or not updating you on the status of your claim, it might be a sign of bad faith.
5. Misrepresentation of policy: If the insurer interprets the policy language in an unreasonable way or misrepresents what is covered by the policy, it could be acting in bad faith.

The concept of the “implied covenant of good faith and fair dealing” is integral to contracts, including insurance contracts. It’s an unwritten, unspoken obligation that requires all parties involved in a contract to deal with each other honestly, fairly, and in good faith. It implies that none of the parties will do anything to prevent the other party from receiving the benefits of the contract.

When it comes to insurance, a breach of the covenant of good faith and fair dealing might occur when an insurance company fails to uphold its end of the agreement in the following ways:

• Failure to adequately investigate a claim: If an insurance company fails to perform a thorough, fair, and balanced investigation of a claim, this could be considered a breach of the covenant of good faith and fair dealing.
  • For example, if the insurance company only seeks out information that supports denying the claim and ignores evidence supporting the claim, this could be seen as acting in bad faith.
• Unreasonable denial of a claim: If an insurer denies a claim without a legitimate or valid reason, this could also be a breach.
  • For example, if an insurer denies a claim based on a misinterpretation or unreasonable interpretation of the policy language, this could be seen as acting in bad faith.
• Delay in payment: Unnecessary delay in the payment or processing of a claim without a valid reason can also be considered a breach. Insurers have a duty to promptly pay any undisputed portion of a claim.
• Unfair settlement practices: If the insurance company offers a settlement amount that is significantly less than what the claim is worth, this may also be seen as a breach of the covenant of good faith and fair dealing.
• Failure to defend: In liability insurance, if the insurance company refuses to defend a policyholder in court when the policy obligates them to do so, this may be a breach of the covenant.
• Misrepresentation of policy terms: If the insurance company misrepresents or inaccurately interprets the policy terms and conditions to the policyholder’s disadvantage, it can be considered as acting in bad faith.

Keep in mind, however, that not all denied claims or disagreements with an insurer’s decision necessarily constitute bad faith. Sometimes, claims can be denied due to genuine disagreements about the policy interpretation or the facts surrounding the claim. That’s why it’s advisable to consult a lawyer if you suspect your insurer might be acting in bad faith.

What Steps Can I Take In Dealing With My Insurance Company?

1. Understand your policy: Make sure you thoroughly understand the terms and conditions of your insurance policy, including the coverage, limitations, and exclusions.
2. Document everything: Keep records of all correspondence, claims, and other interactions with the insurance company. This can be important evidence if a dispute arises.
3. Hire a professional: If you’re having difficulties with the insurer, it may be beneficial to hire a public adjuster or an attorney who practices in insurance law. They can help negotiate with the insurer and protect your rights.
4. File a complaint: If the insurer is not handling your claim properly, you can file a complaint with your state’s department of insurance. They can investigate your complaint and may be able to assist you in resolving the issue.
5. Consider legal action: If the insurer continues to act in bad faith, you may consider filing a lawsuit against the company. This should be a last resort, used only when other efforts have not resolved the issue.

What Is an Example of Failing to Conduct a Reasonable Investigation?

An example could be a homeowner who submits a claim for water damage to their property. If the insurance company denies the claim without sending an adjuster to inspect the damage, or if the adjuster does a very cursory inspection and misses critical details, this could be seen as failing to conduct a reasonable investigation.

What Should I Do if My Insurance Company Acted in Bad Faith?

If you believe your insurance company acted in bad faith, you have several legal options:

1. Negotiate with the company: You may wish to try to resolve the matter directly with the company, perhaps through a more senior representative or a company ombudsman.
2. Mediation or arbitration: If negotiation fails, you may consider mediation or arbitration, which are less formal and usually less expensive than litigation.
3. Lawsuit: If the insurer continues to act in bad faith, you may file a bad faith lawsuit. Ideally, this should be done with the help of an attorney who practices insurance law.

What Kinds of Damages Can I Recover in a Bad Faith Claim?

In a bad faith claim, you can potentially recover more than just the value of your original insurance claim. You might be able to recover:

1. Compensatory damages: This covers the value of the claim that should have been paid out initially, plus any additional costs you incurred due to the insurer’s bad faith conduct. These are available in worker’s compensation claims and other personal injury cases.
2. Consequential damages: These are additional losses that you suffered as a direct result of the insurer’s bad faith, such as legal fees.
3. Punitive damages: In some cases, if the insurer’s conduct was particularly egregious, the court may award punitive damages, which are intended to punish the insurer and deter similar conduct in the future.
4. Emotional distress damages: Some jurisdictions also allow recovery for emotional distress caused by the insurer’s bad faith conduct.

Do I Need a Lawyer to Help Me With My Bad Faith Claim?

If you believe that your insurance company has acted in bad faith, it’s highly recommended that you consult with an attorney. An insurance lawyer can provide valuable advice, help you understand your rights, and represent your interests in negotiations or in court.

LegalMatch is a great platform for finding a suitable attorney. We can match you with a lawyer who practices in insurance law and who is well-equipped to handle your bad faith claim. Submit your case details today.