Insurance bad faith is a term used to describe a legal claim that an insured individual may have against a badly acting or operating insurance company. In each insurance contract, insurance companies have a duty to treat the customer fairly and in good faith. When an insurance company violates this duty, the individual may pursue a legal claim alleging that the company breached the contract.
What Is Bad Faith?
Bad faith is a term used to describe deceitful actions that are often under the guise of honesty, fairness, and well-meaning intentions. Individuals and companies who practice bad faith often commit intentional fraud, duplicity, or deception against parties with whom they have some sort of verbal or contractual agreement.
Determining Insurance Bad Faith
When applied to an insurance company, a difference of opinion regarding the value of a claim is not sufficient to constitute bad faith. An insurance company’s contractual obligation of good faith to its clients is referred to as the company’s “implied covenant of good faith and fair dealing.” Bad faith must involve an insurance company’s intent to act against this contractual obligation.
Examples of Insurance Bad Faith
Some examples of an insurance company practicing bad faith can be seen if the company:
- Diminishes, delays, or denies payment without a reasonable basis
- Fails to confirm or deny claim coverage within a reasonable time after receipt
- Utilizing fraudulent or illegal methods and procedures
- Attempts to settle a claim for less than what a reasonable client would expect
- Diminishing a claim that requires the client to initiate litigation
- Fails to acknowledge and provide prompt response to a covered claim
- Uses inaccurate legal or factual information to diminish, delay, or deny a claim payment
- Attempts to settle claims using applications or policies that were altered without the client’s proper knowledge, notice, or consent
- Victimizing the client by utilizing intrusive, demeaning, or harassing investigative procedures and methods
Preventing Insurance Bad Faith Litigation
Clients who feel that they are not receiving the treatment and services they are entitled to from their insurance company are advised to consult the company directly before pursuing insurance bad faith litigation. Clients are recommended to use the term “bad faith” during a discussion with the adjuster. If this does not initiate a desired response, the client should put the accusation in writing.
To do this, the client can write a letter to the insurance company. In the letter, the client should discuss the adjuster’s specific conduct that is believed to represent bad faith. Written accusations of bad faith will often receive a prompt response. Hopefully, the insurance company will respond favorably to avoid possible insurance bad faith litigation.
Orlando Bad Faith Attorneys
The damages awarded from insurance bad faith litigation are often far in excess of the policy’s original limits. This may occur due to the law’s emphasis on fair dealings in business. Damages for insurance bad faith litigation typically include economic, non-economic, and punitive damages.
Economic damages are defined as compensation for economic loss suffered by the plaintiff. Economic loss is quantifiable and measurable by cost. Examples of compensation for economic damages include, but are not limited to, loss of property, loss of business, loss of reputation, and attorney’s fees.
Non-economic damages are considered subjective, personal losses of the plaintiff. Non-economic damages are not quantifiable. Examples of non-economic damages may include mental and emotional distress. Some states provide a cap on the limit of non-economic damages that may be awarded to a plaintiff.
Punitive damages are also referred to exemplary damages. Punitive damages are essentially used to “punish” and make an example of the defendant. By imposing punitive damages, the court intends to deter or reform the defendant for wrongful actions. Additionally, punitive damages are also meant to deter others from acting similarly. The purpose of punitive damages is not necessarily to provide compensation to the plaintiff. However, the plaintiff receives some or all of the punitive damages award.
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Coleman, Terrence J., and Arnold R. Levinson. “Insurance bad faith claims are not preempted.” Trial June 2001: 30.Academic OneFile. Web. 26 Sept. 2013.
Liles, Rutledge R. “Insurance bad faith: the ‘setup myth’.” Florida Bar Journal June 2003: 18+. Academic OneFile. Web. 26 Sept. 2013.
Perlmutter, Steven P. “The implied waiver of the attorney-client privilege in insurance bad faith cases.” Brief Spring 2012.Academic OneFile. Web. 26 Sept. 2013.
“Some Signs Of Bad Faith Insurance Claims Settlement Practices.” FBIC. FBIC. Web. 26 Sep 2013. <http://www.badfaithinsurance.org/reference/General/0122a.htm>.