Things Your Insurance Company Doesn’t Want You to Know About Bad Faith Claims
A bad faith insurance claim can help an injured person recover after an unwarranted denial of a valid insurance claim or other acts of bad faith from insurance companies. An insurance policy is essentially a paid promise that an insurer will cover events and provide compensation within the scope of an insurance policy if the policyholder pays premiums on time, and in full. Insurance companies lose revenue when they pay on claims, but they also have a duty to act in good faith and process all claims reasonably and honestly.
When insurance companies fail in their duties to policyholders and claimants with valid insurance claims, it falls under the umbrella of “bad faith insurance.” Your insurance company likely hopes you do not know several things regarding your rights as a claimant or policyholder.
The Insurer Owes Several Legal Duties to You
Since insurance companies sell coverage for specific types of damages in specified circumstances, the law places several duties on insurance companies to ensure fair practices and protect the rights of consumers. First, the insurance company has a duty to investigate a claim. An insurance company cannot simply deny a claim on the basis that it cannot determine its own liability. An insurer must conduct a thorough investigation of a claim in a reasonable time to meet this duty to investigate.
Insurers also have a duty to indemnify a claimant for valid damages. An insurance company must pay a settlement against a policyholder in full, up to the limits of the policyholder’s coverage or the insurer fails their duty to indemnify. If an insurer refuses to defend a policyholder in a covered event, the insurer fails the duty to defend. The duty to defend may also apply to claims that do not fully fall within the scope of the policy, but exceptions may apply for policies that explicitly include the costs of defending a policyholder in calculating the coverage limits of the policy.
Finally, insurers have a duty to settle all claims in a reasonable manner. This means providing coverage within the scope of the policy for a claim that meets the criteria set forth in that policy for coverage. In some cases, filing a lawsuit may be in the best interests of an insured party because a lawsuit would likely result in more compensation than an insurance claim would provide. An insurer would breach the duty to settle reasonably if they refuse a settlement in the hope of lowering their liability in a trial.
You Have the Right to Sue for Bad Faith
Some insurance companies and claims adjusters might attempt to persuade a claimant to accept a lower settlement than the claimant has a right to receive, hoping the claimant isn’t aware of his or her rights. In some cases, simply sending a letter accusing the insurer of bad faith will encourage a more agreeable response from the insurer. An experienced insurance bad faith attorney can help a claimant determine whether bad faith has occurred and the best next steps for recovery.
Insurance bad faith may fall under tort law or breach of contract law, depending on the specific actions an insurer takes in bad faith. For example, attempting to hide portions of a policy or additional coverage available to a claimant may be a breach of contract, while deliberate interference with a valid claim or fraud may constitute a tort.
It’s a very good idea to have an attorney on your side for any type of communication with an insurance company. Whether you file against your own policy or an at-fault party’s insurance company, hiring an attorney to help draft your initial demand letter and handle correspondence with the insurer is a good way to discourage any potential bad faith tactics. An attorney can also help an injured person determine other avenues of compensation and whether an insurance claim offers the best recovery.