Insurance Bad Faith

Insurance Bad Faith Overview

An insurance policy is a contract between the insurance company issuing the policy and the purchaser of the policy. A central feature of that contract is the insurer’s commitment to willingly pay legitimate claims properly and promptly. That commitment is binding on the insurer and it is supported by law in all 50 states. It is illegal for an insurer to willingly discount, delay, or deny payment of claims; doing so constitutes bad faith.

Insurance bad faith refers to an insurer’s refusal to comply with its contractual obligations. Insurers use a variety of tactics, including failure to investigate claims in a timely manner, using unreasonable interpretations of policy language, unreasonable delays in payment; unreasonably denying benefits to a claim; refusing to settle the case or reimburse the insured for the entirety of the loss, among others.

Insurance bad faith often constitutes more than breach of contract (the provisions of insurance policy) with the insured. It may also include losses and injuries incurred by the insured as a consequence of the breach of contract. For example, if your house is so badly burned as to be unlivable, you might seek shelter at a hotel and meals at restaurants until such time as your house can be repaired and become habitable again. Most homeowners’ insurance policies cover some or all of the expenses involved in an out of home stay caused by a disaster. If your insurer failed to compensate you in a timely and appropriate manner for the loss of your house, and also for the expenses you incurred while the house was uninhabitable, that would constitute a loss and injury in consequence of breach of contract.

If the breach of contract is flagrant and unreasonable, and the insurer’s behavior is demonstrated to be dishonest, deceptive or fraudulent, a judgment may be obtained against the insurer, and punitive damages awarded. The punitive damages may exceed compensation for the loss under the policy, as punishment for bad faith and as a deterrent to similar conduct by the Insurer in the future.

If you or a loved one suffer from a fire, a flood, or other event related to your insurance coverage, there are several things you should do to protect yourself:

• Immediately notify your insurance agent of the event.
• Review your insurance policy, especially the sections that relate to the situation of your claim.
• Document and keep records of all events, notes and all contacts related to the disaster, and especially of your communications, both written or verbal, with the insurer and anyone else involved, such as firefighting personnel, sheriffs, and other law enforcement entities.
• Submit your claim as soon as you possibly can.
• If your copy of your policy is lost or destroyed, you still need to contact the insurer. If you do not have contact information for the local insurance agent who sold you the policy, contact the company

Most state laws and most insurance policies require that claims be presented within a limited period after the loss. If you, the insured, wait too long, you lose the right to pursue benefit on a claim.