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Insurance Bad Faith Laws that Protect Arizona Consumers

When you purchase insurance, state laws offer some level of protection against bad faith practices. As with any other contract, you expect an insurance company to operate in good faith and uphold its end of the contract as long as you are a customer with an open policy. However, many insurance companies use the complexity of the law to take advantage of policyholders and policy seekers, leaving people in need without the compensation their policy should provide.

In Arizona, an insurer generally has a responsibility to investigate a claim adequately, evaluate the extent of the claim with a reasonable standard of care, and pay the terms of the claim promptly once it has been approved. The company should not unnecessarily delay the process or unfairly minimize the payout to serve its own purposes.

The laws that protect consumers from insurance bad faith in Arizona include:

  • Arizona State Constitution Article 14, section 11 – Insurance shareholders and stockholders have a responsibility to uphold the terms of the insurance policies, including the amount of predetermined coverage available to a policyholder.
  • Article 14, section 16 – This section states that companies must keep appropriate records and make them available to the state if necessary. Insurance companies can’t hide information about their policyholders or contracts if they are presented with a subpoena for the information.
  • Article 15, section 5 – Section 5 protects consumers by ensuring that all insurers are subject to the rules and regulations set forth by the state Department of Insurance.
  • Article 27, section 2 – This section allows consumers to opt out of health insurance at will. However, with the Affordable Care Act regulations, consumers may suffer consequences at the federal level for failing to secure coverage.

Other sections and revisions of these articles define types of insurance, reinsurance, and other aspects of the industry. The state governs the qualifications of insurance adjustors, rates instructions, disclosure regulations, and outlines unfair practices that insurance companies should never use. You can read more about particular statutes on the Arizona Legislature website.

Bad Faith and the Law

In addition to the myriad statutes that may apply to insurance claims, there are some general precedents that have been set regarding bad faith claims in the state. Consumers in Arizona can take action for first-party bad faith and third-party bad faith claims.

First-party bad faith occurs when you have an independent policy for coverage, such as a homeowner’s insurance or life insurance policy, and the insurer breaches the terms of the policy in an act of bad faith.

Third-party claims occur when a policyholder is protected from claims by a third party under the policy, but the insurer fails to uphold the policy’s terms. For instance, if you have liability insurance for your vehicle and cause an accident, but the insurance company fails to cover the cost of the damage the victim experienced (to the limits of the policy), then third-party claims rules are used to determine the outcome of the case.

These distinctions in bad faith cases were set forth in a ruling in 1990 (Clearwater v. State Farm Mutual Auto Insurance Company), 164 Ariz. 256, 258, 792 P.2d 719, 721 (1990).

Together, statutes and precedents from previous cases can be used to help consumers protect their rights as insurance customers in Arizona. Whenever an insurance company fails to answer your questions completely, misleads you regarding the company’s rights, or denies or delays a claim, it may be acting against the laws set forth by the state.

You have the right to dispute the company’s findings; call the professionals at Surrano Law Group at 602-264-1077 if you think you have been mistreated by the insurance company.