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Do Bad Faith Laws Change from State to State?

Bad faith laws exist to make insurance companies accountable for providing the services for which their clients have paid. This is a complicated business, and catching fraudulent claims is an important part of maintaining a viable operation. On the other hand, insurers may act unethically through deceptive practices, manipulation or intimidation, and other unreasonable conduct. Those cases all indicate acts of bad faith.

The Fine Line of Bad Faith

When a client files an insurance claim, it is typically followed up with a thorough investigation and prompt response – either a denial or a payout offer. Insurance agencies typically deny claims for reasons like insufficient coverage or a fraudulent or incomplete report. This is completely within the insurer’s rights.

However, insurers deny many claims without a reasonable basis, and even if an insurer does have a reasonable basis, the company must also follow up in a timely and reasonable way. For example, taking a month to get back to a client about a car insurance claim would be unreasonable. When this happens, the law deems this an act of bad faith. This is just one example, though; there are many other ways an insurer or adjuster may act in bad faith.

What Qualifies as Bad Faith

The general idea is that insurance companies must be honest with their clients and act in a reasonable and ethical way. A few unethical behaviors an insurance company may engage include the following:

  • Misrepresenting clients to avoid a payout.
  • Misinterpreting records.
  • Manipulating policy terminology.
  • Not disclosing policy limits.
  • Unreasonable litigation conduct.
  • Unreasonably delaying your claim.
  • Incorrectly denying your claim.
  • Requesting unreasonable demands to establish proof of loss.
  • Using aggression or coercion to force a settlement.
  • Requiring an insured party to contribute to a settlement.
  • Failing to thoroughly investigate a claim.

Bad faith may also occur during litigation. For example, an insurer may attempt to enforce an unenforceable policy (one that goes against what is legally required or outlined in your policy) to deny a claim or minimize a payout. Moreover, a company may violate these laws without deliberately acting in bad faith; for example, failing to disclose policy limits is a problem whether or not it was intentional.

The Many Jurisdictions of Bad Faith Law

Bad faith laws do vary from state to state, but the differences are minimal. The common law governing these situations is that insurers are under an implied duty of good faith. In this case, you’ve paid to be defended, compensated, or otherwise represented by an insurance company. If it fails to look out for your best interests or deals with you unfairly, the law considers it an act of bad faith.

At the state level, many states prohibit bad faith in general. Others employ more specific legislation; for instance, the Unfair Claims Practices Act delineates conduct standards for companies. When they fail to meet these standards, the courts consider it an act of bad faith. More states are adopting these specific laws to guarantee policyholders are protected from insurance companies acting in bad faith.

Above the state level, consumers will run into the Employee Retirement Security Act of 1974.  This specifically addresses employee benefits plans. Companies that meet certain minimums (such as number of employees) must provide insurance plans, such as workers’ compensation, to cover their personnel. If an employee files a claim and he or she suspects bad faith, the government will investigate it against the guidelines indicated in the Employee Retirement Security Act of 1974.

Understanding Claims Handling Procedures and When You Need Legal Help

For an individual, it can be difficult to know when an insurance company is acting in bad faith. How long is an unreasonable delay? Is offering an initial settlement quickly without an adequate investigation a problem? These are reasonable questions, and they’re the reason why reliable law firms offer free consultations. Contact Surrano Law for more information about your claim. We understand the complications related to delayed, denied, or inadequate claims, and we’ll get to the bottom of your concerns.