Insurance Bad Faith – What Is It Exactly?
Insurance bad faith, also called insurance fraud, is a term that refers to the mistreatment consumers and businesses get from their insurance companies. It is normally used in situations in which an insured person or entity is refused a settlement payout.
Unfortunately, insurance bad faith is something that happens often. A lot of insurance companies make use of statistics to know how much they need to pay out, depending on particular circumstances. Even if the policy entitles the insured person a certain amount of money, the insurer may refuse to pay it fully. Either the individual or entity accepts the insurer’s decision or brings the matter to court for bad faith.
Below are the three common scenarios involving insurance bad faith:
> an insurer refusing to provide all promised benefits to the insured party.
> insurer offering a compensation amount lower than the policy guarantees; and
> unjustified delays in payment to insured.
Every insurance contract comes with a “covenant of good faith and fair dealing,” which may be implied or directly stated. That means the two parties – insurer and insured – are both obliged to follow what is in the contract.
This contract dictates that the insurance company compensate the insured party fully and in timely fashion when it is appropriate, where failure to do so is tantamount to violating the good faith and fair dealing covenant. In some states, there are statutes or other regulations that govern bad faith by insurance firms.
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 several states, punitive damages, or damages meant to punish an insurer for bad conduct, also apply. In some states, punitive damages come under a cap, but not in other states where there are no limits. With insurance fraud or bad faith being complicated and thus confusing, anyone who may want to court because of such experience must seek a lawyer’s help.
This kind of case is typically accepted on contingency basis by an attorney. That means the attorney will not be receiving payment directly from the client – not even from the award of damages he receives – but rather from the money that the court will order the insurer to pay the lawyer in a separate judgment.
If you think your insurance provider has acted in bad faith on your policy claim, see an insurance lawyer who can outline the possible steps you can take against the company.