9 Lessons Learned: Policies

What Is Insurance Bad Faith?

Insurance bad faith, also called insurance fraud, refers to the mistreatment of consumers and businesses by their insurers. It is often used in situations where an insurance company refuses to pay out a settlement to an insured individual or entity.

Unfortunately, insurance bad faith is something that happens often. A lot of insurance companies make use of statistics to know how much they need to pay out, depending on particular circumstances. Even if an insured person is entitled to a certain amount of cash, the insurer may still not want to pay it in full. The individual or entity either accepts the decision of the insurer or goes to court for bad faith.

Three of the most common scenarios involving insurance bad faith are:

> insurer denying an insured party all the benefits stated in the insurance policy;

> insurer offering less compensation than what the policy guarantees; and

> unwarranted payment delays.

Every insurance contract comes with a “covenant of good faith and fair dealing,” which may be implied or directly stated. That means both parties have their respective obligations to follow what is stated in the contract.

In such a contract, the insurance company must fully compensate the insured party when appropriate and in a timely manner; otherwise, the insurer will have committed a violation of the good faith and fair dealing covenant. In certain states, statues or other regulation exist, covering bad faith by insurance providers.

When bad faith is exhibited by these companies, they may be subject to punitive damages, government penalties and statutory damage. Bad faith claims are affected by different laws in different states, so anyone dealing with related issues with their insurers must talk to a lawyer.

Insurance companies pay different bad faith damages, depending on the jurisdiction. In general, the damages will be equivalent to the actual compensatory damages the insured would have rightfully obtained from the insurer in a non-bad faith setting. A lot of states also allow for punitive damages, or damages intended to punish the insurance company for bad conduct. Some states put a limit on the amount of punitive damages that may be claimed, while in others, the sky is the limit. Because insurance fraud or bad faith can be a complicated and often confusing matter, anyone considering to go to court due to such experience must seek assistance from a lawyer.

This kind of case is typically accepted on contingency basis by an attorney. That means the attorney will not be paid from the client’s award of damages, but rather from the damages that the insurer will have to pay the lawyer in a separate judgement.

If you think your insurer has acted in bad faith in relation to your policy claim, your first step is to see an insurance lawyer who can define the steps you must take.

Source: Shernoff Bidart Echeverria Bentley

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