When you buy an insurance policy, you are essentially paying for the peace of mind that comes with knowing you are protected financially in the event of an unforeseen circumstance. You trust that your insurance company will have your best interests at heart and be there for you when you need them most.
Unfortunately, this is not always the case. Sometimes, insurance companies act in bad faith, which can leave policyholders high and dry when they need help the most.
So, what is bad faith insurance? Bad faith insurance is when an insurance company refuses to pay a claim or provide coverage that should be available to the policyholder under the terms of their policy. In other words, the insurance company is not living up to its end of the bargain.
It is important for policyholders to recognize the signs of bad faith insurance so they can take action if they feel their insurer is not treating them fairly.
Read on to learn more about bad faith insurance and what you can do if you think your insurance company is acting in bad faith.
Duties of an Insurance Company to Policyholders
When you purchase an insurance policy, the insurance company has a duty to act in good faith and deal fairly with you. This means that the insurance company must do everything it can to pay valid claims in a timely manner. The company is also required to cover all losses covered by the policy, as long as they are not caused by intentional or criminal acts on the part of the policyholder.
An insurance company must also obey state laws and regulations governing the insurance industry. If an insurance company violates any state laws, it may be considered to be acting in bad faith.
In addition, an insurance company has a duty to disclose any information that is relevant to the policy. This includes information about the company’s financial condition, the terms and conditions of the policy, and any changes that have been made to the policy since it was purchased.
Some other duties of an insurance company include:
- Duty to Investigate: An insurance company is required to investigate all claims made by policyholders. This means that the company must gather all relevant information about the claim and make a determination about whether or not it is valid.
- Duty to Indemnify: Indemnification refers to the financial compensation an insurance company pays to a policyholder for covered losses. The amount of the indemnity payment is typically based on the terms of the insurance policy.
- Duty to Defend: The insurance company is also required to defend policyholders against any legal claims made against them. This includes both civil and criminal cases.
- Duty to Offer a Reasonable Settlement: Some jurisdictions require insurance companies to offer policyholders a reasonable settlement before they can proceed to trial. A reasonable settlement is one that is fair to both the policyholder and the insurance company. It should take into account the policyholder’s damages, the insurance company’s liability, and the cost of litigation.
What Is Bad Faith Insurance?
Insurance bad faith is a legal term that describes an insurance company’s wrongful conduct in handling a claim. This can involve denying a claim without a reasonable justification, underpaying a claim, or unreasonably delaying the payment of a claim.
When an insurance company behaves in bad faith, it can leave the policyholder with little choice but to file a bad faith lawsuit. If the policyholder is successful in court, the insurance company may be ordered to pay damages for the harm it has caused. These damages can include the policyholder’s attorney fees, as well as compensation for any losses suffered as a result of the insurance company’s bad faith.
Bad faith isn’t simply a difference of opinion between the insurance company and the policyholder. For an insurance company to be found guilty of bad faith, its actions must be deemed unreasonable under the circumstances.
While insurance bad faith may sound like a rare occurrence, it actually happens quite often. In fact, most insurance companies are often sued for bad faith practices. If you think your insurance company has behaved in bad faith, you may want to contact an experienced attorney to discuss your legal options.
What Are the Consequences of Bad Faith Insurance?
There are a few different consequences that can result from bad faith insurance. First, the insurance company may be ordered to pay damages to the policyholder. These damages can include the policyholder’s attorney fees, as well as any losses suffered as a result of the insurance company’s bad faith.
In some cases, the court may also order the insurance company to reform its practices. This means that the insurance company may be required to change the way it handles claims in the future. Finally, the insurance company may also be subject to punitive damages. Punitive damages are designed to punish the insurance company for its bad faith practices and deter other companies from engaging in similar conduct.
Types of Bad Faith Insurance Claims
There are two main types of bad faith insurance claims: first-party and third-party.
First-party claims are those that policyholders make against their own insurance companies. These claims typically arise when the insurance company denies a valid claim or unreasonably delays payment.
In a first-party bad faith insurance claim, the policyholder is essentially suing the insurance company for breaching the contract. This means that the policyholder must prove that the insurance company did not act in good faith when handling the claim.
For example, let’s say you have a home insurance policy that covers water damage. If your home is damaged by a broken pipe, you would expect your insurance company to pay for the repairs. However, if the insurance company denies your claim without a reasonable justification, you may be able to file a first-party bad faith insurance claim against them.
Third-party claims are those that policyholders make against other people’s insurance companies. These claims typically arise when another person’s insurance company denies a valid claim or unreasonably delays payment.
In a third-party bad faith insurance claim, the policyholder (first-party) sues the insurance company of the person who is liable for the damages (third-party). The first party seeks to recover the amount that should have been paid by the third party’s insurance company, plus any additional damages.
For example, in a car accident case, the policyholder would sue the at-fault driver’s insurance company. If the insurance company denied the claim or delayed payment without a reasonable justification, the policyholder could file a third-party bad faith insurance claim against them.
Signs That an Insurance Company May Be Acting in Bad Faith
There are a few signs that an insurance company may be acting in bad faith. If you notice any of the following, it may be time to speak with an attorney:
- Unreasonably Delaying Payment: One of the most common signs of bad faith insurance is an unreasonable delay in payment. If it takes more than a few weeks for your insurance company to process your claim, it may be acting in bad faith.
- Denying Valid Claims: Another sign of bad faith insurance is when an insurance company denies valid claims. If your insurance company denies your claim without a reasonable justification, it could indicate that it is acting in bad faith.
- Refusing to Settle Claims: In some cases, insurance companies will refuse to settle claims. This means that they will not pay the full amount that you are owed. If your insurance company refuses to settle your claim, it may be acting in bad faith.
- Lowballing Settlements: In other cases, insurance companies will lowball settlements. This means that they will offer you a settlement that is much lower than the amount you are actually owed. If you think the settlement offer from your insurance company is too low, it could be a sign of bad faith insurance.
- Canceling Your Policy: While not the most common sign of bad faith insurance, some insurance companies will cancel a policyholder’s policy after they file a claim. If your insurance company cancels your policy after you file a claim, it could indicate that it is acting in bad faith.
What To Do If You Suspect Bad Faith Insurance Practices
If you suspect that your insurance company is acting in bad faith, there are a few steps that you can take:
1. Review Your Policy
The first step is to review your insurance policy. You should familiarize yourself with the terms of your policy and what it covers. This will help you to determine if your insurance company is acting in bad faith.
The fine print of most insurance policies will contain a clause that allows the insurance company to act in bad faith. However, this clause is usually limited to specific circumstances. For example, the clause may allow the insurance company to refuse to pay a claim if it believes that the policyholder is not entitled to coverage.
2. Gather Evidence
If you think your insurance company is acting in bad faith, it is important to gather evidence. This evidence can include things like letters from your insurance company, emails, and records of phone calls. This evidence will be important if you decide to take legal action against your insurance company.
You must also have proof that your claim is valid. This proof can include things like medical records, police reports, and witness statements.
3. Speak with an Attorney
If you have evidence that your insurance company is acting in bad faith, you should speak with an attorney. An attorney from Wells|Trumbull will be able to help you understand your legal options and take action against your insurance company.
Without the expert help of an attorney, it will be difficult to take on a large insurance company. An experienced attorney will know how to gather evidence and build a strong case against the insurance company.
4. File a Complaint
If you decide to take legal action against your insurance company, you will need to file a complaint. This complaint can be filed with your state’s insurance department or with the Better Business Bureau.
Filing a complaint is important because it will put pressure on the insurance company to change its practices. In some cases, the insurance company may even be fined or have its license revoked.
5. Take Legal Action
Finally, you may need to take legal action against your insurance company. This legal action can include filing a lawsuit or arbitrating your claim.
If you decide to take legal action, it is important to have an experienced attorney on your side. An experienced attorney will know how to navigate the legal system and build a strong case against the insurance company.
Damages Recoverable in an Insurance Bad Faith Claim
If you are successful in your insurance bad faith claim, you may be able to recover a variety of damages. These damages can include:
- Past Due Benefits: If your insurance company has wrongfully denied your claim, you may be entitled to the benefits that you should have received. This can include things like medical expenses and lost wages.
- Future Benefits: In some cases, you may also be entitled to future benefits that you would have received if your claim had been paid.
- Emotional Distress: You may also be able to recover damages for the emotional distress that you suffered as a result of the insurance company’s bad faith practices.
- Punitive Damages: In some cases, you may also be able to recover punitive damages. Punitive damages are designed to punish the insurance company for its bad faith practices.
- Attorney’s Fees: You may also be able to recover your attorney’s fees if you win your case. Most attorneys work on a contingency basis, which means that they only get paid if you win your case.
Your insurance company has a duty to deal with you fairly and in good faith. If it doesn’t, you may be able to take legal action against the company. By understanding what bad faith insurance is, you can be sure that you are protected in the event that your insurance company does not act in good faith.