What Is Insurance Bad Faith?
Insurance bad faith, also called insurance fraud, is a term that refers to the mistreatment consumers and businesses get from their insurance companies. It is normally used in situations in which an insured person or entity is refused a settlement payout.
Insurance bad faith unfortunately occurs ever so often. A lot of insurance companies make use of statistics to know how much they need to pay out, depending on particular circumstances. Even with the insured person being fully entitled to a certain amount, the insurer may not pay that money in full. Either the individual or entity accepts the insurer’s decision or brings the matter to court for bad faith.
Below are the three common scenarios involving insurance bad faith:
> insurer denying all promised benefits to the insured;
> insurer providing less compensation than what is guaranteed by the policy; and
> unwarranted payment delays.
Each insurance contract comes with a stated or implied “covenant of good faith and fair dealing.” That means both parties have their respective obligations to follow what is stated in the contract.
This contract dictates that the insurance company compensate the insured party fully and in timely fashion when it is appropriate, where failure to do so is tantamount to violating the good faith and fair dealing covenant. In some states, there are statutes or other regulations that govern bad faith by insurance firms.
Companies exhibiting bad faith may be subject to government-imposed penalties, punitive damages and statutory damage. Different laws affect bad faith claims in different states, so anyone having related problems with their insurers should talk to a lawyer.
The bad faith damages paid by insurance companies are different, 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. In a number of states, punitive damages – damages intended as punishment for an insurer’s bad conduct – also apply. In some states, there are limits to how much may be claimed in punitive damages; in others, there are none. With insurance fraud or bad faith being complicated and thus confusing, anyone who may want to court because of such experience must seek a lawyer’s help.
This type of case is usually accepted by an attorney on a contingency basis. That means the attorney will not be receiving payment directly from the client – not even from the award of damages he receives – but rather from the money that the court will order the insurer to pay the lawyer in a separate judgment.
If you believe your insurance company has acted in bad faith on your policy claim, talk to an insurance lawyer who can outline the steps you can take.