Purchasing an insurance policy conveys an implied duty of good faith and fair dealing. That means the insurer must process and pay valid claims in an honest and fair manner. Bad faith, in the context of insurance, happens when an insurer breaches this duty by unreasonably denying, delaying, or underpaying a legitimate claim.
Insurers must not arbitrarily deny claims. That principle applies in all States. Insurers who fail to abide by this principle act in bad faith.
A bad faith claim is more than a simple breach of contract. It involves an element of intentional wrongdoing, such as a dishonest or unfair tactic used by the insurer to protect its profits at your expense.
One tactic that we’ve noticed in handling insurance bad faith claims is a tendency on the bad acting insurer’s part to attempt to turn the matter into a claim of fraud against the insured. In essence, the insurer puts the insured on defense. Insurers engaged in this tactic typically begin demanding enormous amounts of in some instances immaterial information. The insurer’s real aim is to irritate or scare the insured to abandon the claim.
Survey of Bad Faith Insurance Laws and Statutes
Each state has laws targeted to address insurance bad faith. Following is a collection of the law in each state. Some states are known to have very aggressive bad faith statutory schemes that apply hefty penalties for
Bad faith insurance examples
An insurance company may be acting in bad faith if it engages in any of the following practices:
- Unreasonably delays action: Taking too long to investigate, communicate, or pay a claim without a valid reason.
- Improperly investigates: Failing to conduct a thorough and proper investigation of your claim.
- Makes offers well below claim value: Offering a settlement amount that is significantly less than what your claim is worth.
- Wrongfully denies claim: Denying a valid claim without providing a legitimate, written explanation.
- Misrepresents policy terms: Intentionally misleading you about your policy’s coverage or terms to justify a denial.
- Makes burdensome immaterial requests: Demanding unnecessary or excessive paperwork to pressure you into giving up on your claim.
- Fails to defend: In a third-party claim, failing to defend you against a claim filed by another party.
- Makes threats and intimidates: Using threatening language or tactics to get you to accept a low settlement.
Proving bad faith generally
As reflected in the 50 state survey above, policyholders can pursue bad faith claims through both statutory and/or common law. Generally, to successfully prove a claim, you must demonstrate the following:
- Valid claim: The incident was covered by your insurance policy, and you met all conditions required for a valid claim.
- Insurer acted unreasonably: You must show that the insurer’s conduct went beyond a simple mistake or a mere breach of contract. For instance, you could show they denied the claim without an investigation or deliberately ignored evidence.
- Harm: You must prove that the insurer’s bad faith caused you financial loss, emotional distress, or other damages.
Key evidence to gather
To support your claim, gather evidence such as:
- communication records with insurer
- claim documentatoin
- policy documents
- denial letters
- settlement offers
- timeline
Statutes of limitation for bad faith claims
To protect your right to sue, it is crucial to file a bad faith insurance claim within the state’s specific statute of limitations. Missing this strict deadline will result in the court dismissing the case. Importantly, if dismissed, the case claimant will lose any leverage for negotiating a settlement, regardless of claim merits. The statute of limitations ensures legal disputes are resolved in a timely manner while evidence and witness memories are still fresh, thus preventing insurance companies from delaying the process indefinitely.
