What Is Insurance Bad Faith?
Insurance bad faith, which also goes by the term, insurance fraud, refers to the mistreatment of consumers and businesses by their insurance carriers. It is normally used in situations in which an insured person or entity is refused a settlement payout.
Insurance bad faith is unfortunately a widespread occurrence. Plenty of insurance companies depend on statistics when determining how much must be paid out, depending on the given circumstances. Even if an insured person is entitled to a certain amount of cash, the insurer may still not want to pay it in full. That means the individual or entity can either accept the decision by the insurer or take the matter to court for bad faith.
Three of the most common scenarios involving insurance bad faith are:
> insurer denying an insured party all the benefits stated in the insurance policy;
> insurer providing less compensation than what is guaranteed by the policy; and
> unreasonable delays in payment to insured party.
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.
In such a contract, the insurance company must fully compensate the insured party when appropriate and in a timely manner; otherwise, the insurer will have committed a violation of the good faith and fair dealing covenant. There are states that have statutes or other regulations that cover bad faith by insurance providers.
When these companies exhibit bad faith, they can be subject to statutory damage, punitive damages and penalties imposed by the government. Because there are different bad faith-related laws in different states, it is important for anyone with these issues to consult with a lawyer.
Depending on the jurisdiction, an insurance company may have to pay different bad faith damages. The damages will be generally equivalent the actual compensatory damages the insurer, in a non-bad faith setting, would have paid out to the insured. In a number of states, punitive damages – damages intended as punishment for an insurer’s bad conduct – also apply. Some states put a limit on the amount of punitive damages that may be claimed, while in others, the sky is the limit. Because insurance fraud or bad faith can be a complicated and often confusing matter, anyone considering to go to court due to such experience must seek assistance from a lawyer.
This kind of case is typically accepted on contingency basis by an attorney. That means the attorney will not be paid from the client’s award of damages, but rather from the damages that the insurer will have to pay the lawyer in a separate judgement.
If you think your insurer has acted in bad faith in relation to your policy claim, your first step is to see an insurance lawyer who can define the steps you must take.