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What is Insurance Bad Faith and How Can You Recognize it?

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What is Insurance Bad Faith and How Can You Recognize it?

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Many people might not know what the term “insurance bad faith” refers to, but could probably recognize signs of it. Insurance bad faith occurs when an insurance company fails to deal fairly with the people they insure in order to avoid paying a claim. In these situations, a claim can be filed against the insurance company by a policyholder who was harmed by the company’s show of bad faith.

Insurance policies are a promise of protection that you pay to have access to, so when an insurance company fails to follow through on that promise, the financial damage to a client can increase and the insurance company should be held accountable. Insurance bad faith can result in a client not receiving the money they need and are entitled to use to cover their damages as a result of an accident. Insurance bad faith accusations are so serious that sometimes even the mention of it is enough to scare an insurance adjuster straight. However, the best thing you can do to protect yourself in this situation is to seek legal counsel. It’s important to remember that insurance companies make and keep their money by reducing and denying claims to their policyholders whenever possible.

The following are some examples of insurance bad faith:

  • Deliberately misinterpreting their own policy language.
  • Deliberately misinterpreting records.
  • Creating unreasonable/unnecessary delays to avoid resolving a claim.
  • Demanding unnecessary proof.
  • Demanding the insured party contribute to a settlement when they shouldn’t have to.
  • Failing to conduct a thorough investigation.

Insurance bad faith cases are notoriously complex.

The rules about what constitutes bad faith vary from state to state, and can be difficult to prove. This is why it’s a good idea to speak to a lawyer and learn what your rights are, as well as learn more about the process of filing a claim against an insurance company. If an insurance company can be proven to have behaved in bad faith, the company is then liable to pay not only what they owed the policyholder based on the initial contractual agreement, but also additional damages that occur as a result of the delay or refusal to pay an insurance claim. These could mean that the insurance company actually has to pay a considerably greater amount of money to cover the losses of a policyholder than they would otherwise have had to.

Types of damages which can be compensated in a bad faith claim:

  • Contract damages. This refers to the amount of money the insurance company owed the policyholder up to the policy limit.
  • Compensatory damages. These damages refer to the ways that a policyholder suffered due to an insurance company’s refusal or delay in paying a claim. This could include emotional distress, loss of professional reputation, financial hardship, etc.
  • Punitive damages. These damages exist primarily to punish the insurance company for its bad faith and are intended to deter the company from repeating that behavior in the future. Punitive damages are not applicable in every case, and usually only when the insurance company’s behavior was particularly bad.

One can begin investigating insurance bad faith by using the phrase in conversation with the insurance adjuster.

Often the adjuster’s reaction will indicate whether insurance bad faith was already occurring or if they intended to engage in it. Bad faith accusations are serious and can mean extreme expense to an insurance company if not corrected immediately. This is why it’s not a bad idea to bring up the phrase in conversation with your insurance adjuster if you suspect disreputable practices. However, when in doubt it’s wise to have a lawyer on your side who can hold an insurance company accountable to providing you with the compensation you deserve. Even during settlement negotiations, the possibility of a fight over bad faith is often enough to inspire a reasonable settlement offer from the insurance company. If you think you may be eligible to file an insurance bad faith claim, contact an attorney to learn more and discuss your options.

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