What is insurance bad faith?
Insurance bad faith refers to unfair conduct of an insurance company in denying an insurance claim that is clearly payable by the insurance company. In addition to denial of payment, an insurance company’s unreasonable delay in payment or only partial payment could constitute bad faith. See below for examples.
Why do insurance companies act in bad faith?
Insurance companies engage in bad faith conduct because (1) they save money by denying claims that are payable and (2) they can get away with it. By denying claims that are properly payable, insurance companies get richer. Insurance companies know that many of the insureds (usually their clients they promise to protect) just go away after one or two rejections of the claims. So these companies are, in fact, playing the numbers game.
What are some examples of insurance bad faith?
(1). Your home was damaged due to fire. You file a claim with your insurance company for the loss. Rather than paying you for the loss so you could start fixing your home and move on with your life, the insurance company outright denies the claim or pays you only a portion of the loss even though the entire claim is clearly payable. This type of insurance claim is commonly referred to as a “first party” claim because the claim was brought by you, the insured.
(2). You hit a pedestrian while you were driving. The pedestrian is injured badly, and everyone agrees it is your fault. You have an automobile insurance policy. The pedestrian sues you in court. Your insurance company now has two different duties: a duty to defend and a duty of indemnification. Duty to defend means the insurance company must represent you in the lawsuit brought against you by the pedestrian. Duty of indemnification means the insurance company must pay a judgment entered against you in the lawsuit. Rather than defending you or paying for the judgment, the insurance company just walks away. In that event, a judgment could be entered against you and you would be responsible for the amount of the judgment. This type of insurance claim is commonly referred to as a “third party” claim because the claim was brought by a third party (or the pedestrian in this example).
Are there any other examples of bad faith?
There is no one definition of the phrase “bad faith.” Bad faith is a concept that generally refers to insurance companies’ acting unreasonably or unfairly. The fact finder (usually the judge or jury) has to determine that the insurance company acted in bad faith by (i) its unreasonable or unfair conduct and (ii) its knowledge or reckless disregard of the fact its conduct was unreasonable. In addition to outright denial of claims that are properly payable or undue delay in handling claims, there are other types of conduct that could constitute bad faith, including, inadequate investigation, failure to give consideration to the interest of its insured, refusal to defend a lawsuit, refusal to settle on behalf of the insured, or insisting on an unreasonable interpretation of an insurance policy.
What are my options if my insurance company is acting in bad faith?
You can walk away from it and let the insurance company deny your claim, which is exactly what the insurance company is hoping you would do. Or, you could hire a lawyer and make the insurance company pay.
What can I get if I sue my insurance company for bad faith?
If you are successful in proving bad faith against your insurance company in court, you are likely to recover all your damages, including the amount of money due under your insurance policy (i.e., coverage amount) and, sometimes, even consequential damages that are not covered under the insurance policy. That means you could get more than the amount of your insurance policy if the court finds that the insurance company’s bad faith conduct caused you damages in the amount in excess of the policy amount. The court may even award you with punitive damages if the insurance company’s bad faith conduct was especially egregious, willful, wanton, or reckless.
Is there a time limit on my filing a bad faith claim against the insurance company?
Yes, there is a 2-year limit on filing a lawsuit against an insurance company for bad faith. This means you need to file a lawsuit within 2 years from the time the insurance company committed wrongful conduct. If you don’t bring a lawsuit within this 2 year period, you would be forever barred from bringing a bad faith claim against the insurance company.
Filing a bad faith action.
The lawyers at KHF are committed to holding insurance companies responsible for the promises they made to their insureds. It is deplorable when insurance companies break their promises to insureds, their own clients, who have been making their insurance premiums faithfully. When you or someone else suffers a loss or injury covered by your insurance, your insurance company has the duty to immediately and effectively protect your interests. When an insurance company shirks its duty during the time of dire needs (after all, you would not have filed a claim with your insurance company unless you were in a dire situation), it is likely acting solely in its self-interest and you need the help of a lawyer.
If you believe your insurance company acted unfairly or unreasonably, please contact us.