Understanding Insurance Bad Faith
Insurance bad faith, which also goes by the term, insurance fraud, refers to the mistreatment of consumers and businesses by their insurance carriers. It often applies to cases in which an insurance company does not want to pay out a settlement to an insured person or entity.
Unfortunately, insurance bad faith is something that happens often. Several insurance companies rely on statistics when deciding how much they have to pay out in specific circumstances. Even with the insured person being fully entitled to a certain amount, the insurer may not pay that money in full. The individual or entity either accepts the decision of the insurer or goes to court for bad faith.
Below are the three common scenarios involving insurance bad faith:
> insurer denying all promised benefits to the insured;
> insurer providing less compensation than what is guaranteed by the policy; and
> unjustified delays in payment to insured.
Each insurance contract comes with a stated or implied “covenant of good faith and fair dealing.” That means both parties have their respective obligations to follow what is stated in the contract.
This contract provides that the insurance firm should fully compensate the insured party in timely fashion under appropriate circumstances; otherwise, the company is considered to be in violation of the covenant of good faith and fair dealing. In certain states, statues or other regulation exist, covering bad faith by insurance providers.
Companies exhibiting bad faith may be subject to government-imposed penalties, punitive damages and statutory damage. Because there are different bad faith-related laws in different states, it is important for anyone with these issues to consult with a lawyer.
Insurance companies pay different bad faith damages, depending on the jurisdiction. In general, the damages will be equivalent to the actual compensatory damages the insured would have rightfully obtained from the insurer in a non-bad faith setting. A lot of states also allow for punitive damages, or damages intended to punish the insurance company for bad conduct. 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 client will not be paying the attorney from the damages awarded to him, but rather from the damages that the court will specifically order paid to the attorney 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.