Have you been in a situation where you thought that your insurance company has been negligent and has intentionally not responded to your needs? Have your insurance claims been denied without any proper explanation or your claims have not been processed at all? Would you blame the insurance company for not paying attention to your rights as a consumer? All these situations define an insurance bad faith scenario where the good faith and fair dealing of the insurance company are called into question.
What is insurance bad faith?
Insurance bad faith occurs when your insurance company acts against the insured person’s (policyholder’s, i.e., your) interests. An insurance policy is a contract between the insurance company and the policyholder that binds the insurer to act in good faith with fair dealing in all the transactions. Whenever an insurer fails to act in good faith by breaching the terms of the contract, it leads to an act of insurance bad faith. A common occurrence is the failure to process an insurance claim or the improper denial of an insurance claim in case of damage of an insured property like house or automobile. In these situations, a policyholder can contest the claim by proving that the insurance company acted in bad faith by not adhering to fair dealing policy.
Some other examples of bad faith include delaying claim payments beyond the stipulated time frame, stalling court proceedings, improper valuation of damaged property leading to a lower claim than what the policyholder is paying for and improper justification for claim denials. For example, many insurers reported that flood damage (which is not generally covered) led to the damage of vast number of homes instead of wind damage (which is usually covered in the home owner’s insurance policy) during Hurricane Katrina, thereby denying claim payments to the policyholders.
What are the action steps in case of claims leading to insurance bad faith?
In the event of a claim, a policyholder (you) should notify the insurance company, submit the claim within the specified time and should keep track of all the communication carried out with the insurance agent. As a policyholder, if you think that the insurance company is not proving the coverage as stipulated by the legally binding insurance policy document or your claim payment is being denied, you should take action to claim damages arising out of the breach of the contract. The first step is to write to the Commission of the Department of Insurance in your state for review and assistance. If this review hasn’t been helpful in getting the insurer to pay your claims, consult an insurance attorney in your state who can help review the case to check for the insurer’s bad faith and can help you file a case against the insurer.
In the court settlement, the policyholder can not only recover the benefits of the policy for the claim but also recover additional damages that include costs that arise out of the lawsuit process such as attorney fees, court processing fees and other expenses incurred during the trial along with the costs of emotional distress. Please be aware that states across the country differ in the amount allowed to be recovered as damages from the insurance company. One should consult a lawyer well versed with his/her state insurance law to better understand the legal process involved in suing an insurance company for bad faith deeds.
Recent example – State Farm Mutual Auto. Ins. Co. vs Campbell
There have been many successful cases against insurance companies. These companies have different ways to avoid paying a legal claim, which is detrimental to the policyholder but beneficial to the insurance company’s bottom-line. One such famous example is the case of Curtis Campbell, an Utah driver involved in a car accident that killed one and caused permanent disabilities in another, who was misled by State Farm Insurance (his auto insurance company) during the civil trial. State Farm also initially refused to pay the fine that exceeded the policy limit as imposed by the judge on Campbell, though it later did. Campbell later sued the insurance company on multiple accounts of bad faith and was awarded $145 million in settlements.