Bad faith insurance, also called unfair claims practices, occurs when an insurance company (insurer) tries to default on its legal responsibility to pay genuine claims to its policyholders (insureds). There are state laws which protect consumers from the unfair claims practices of insurance companies. It is important to understand that “good faith insurers” actively try to find ways to pay valid claims quickly and fairly, while “bad faith insurers” look for ways to not pay them.
Some common examples of bad faith insurance include:
- Failing to reveal policy limits
- Failing to provide key information to claimants
- Failing to investigate a claim within a reasonable amount of time
- Failing to properly investigate a claim
- Failing to either pay or deny a claim within a reasonable amount of time
- Failing to negotiate in the settlement of a claim
- Making little effort to arrive at a fair and reasonable settlement when the insurance company is clearly liability
- Failing to respond to a demand within a reasonable amount of time
- Denying a claim without a rational explanation for doing so
- Making a settlement offer that is much less than what the claim is worth
- Denying coverage without reasonable cause
- Failing to notify insureds of any arbitration appeals procedures in an attempt to settle claims for less than what arbitration may award
- Trying to settle claims based on a policy or application which was altered without the consent of the insured
- Demanding that the insured provide excessive documentation that is not required under the terms of the policy
- Using fraudulent investigative procedures
- Requesting that the insured pursue the other party for payment, before the insurer will offer any payment to the insured
What recourse do you have?
Department of Insurance (DOI):
If you feel that you have been unfairly treated by your insurance company, you can file a complaint with your state Department of Insurance (DOI). The DOI: audits and investigates insurance companies to make sure they are financially stable; regulates company agents and the types of insurance sold; and makes sure that the insurance companies meet the contractual obligations with their policyholders. After you file the complaint it will be added to the typically long list of complaints the DOI has and if the complaint is deemed to be valid, and the insurance company refuses to change its decision, a mediator may be called to help resolve the issue. But remember, mediation isn’t binding on either you or the insurance company.
Hiring an Experienced Insurance Attorney:
Hiring an attorney who specializes in bad faith insurance will shorten the amount of time it takes for the DOI and the insurance company to respond to your complaint. An attorneys who has met and interviewed you about your complaint will view you as a person who has a problem that needs to be solved. An attorney who specializes in bad faith insurance knows the insurance laws and your rights.
Laws state that if an insurance company acts in bad faith, it must pay the original claim and any additional damages required to compensate the insured for that denied claim. For example, let’s assume an insured was involved in a car accident and the car was damaged such that it couldn’t be driven. Let’s also assume that: the insurance company refused to pay for the covered damage; the insured had to take time off from work to have the car repaired; and had to hire an attorney to initiate a lawsuit against the insurance company. The insured would be entitled to reimbursement (compensatory damages) for: the time lost at work; the cost of repairing the vehicle; and the cost of attorney’s fees.
Furthermore, if the insurance company’s actions were especially outrageous, a jury may award punitive damages to the insured. Punitive damages, also called exemplary damages, are awarded to make an example of (punish) and deter insurance companies from engaging in such egregious conduct. It’s important to note that if an insurance company simply makes a mistake and after discovering their mistake they agree to pay the claim quickly and fairly, then damages are not applicable.
So, how do you know if it is worth your time to contact the Department of Insurance, or to hire an attorney who specializes in bad faith insurance claims? As a layman you probably wouldn’t know. What you can do is gather all of your information, and call an attorney who can help you decide if you have a case.