Bad faith insurance refers to a situation where an insurance company acts dishonestly or unfairly towards its policyholders when handling their claims. In such cases, the insurance company may unreasonably deny or delay a valid claim, fail to thoroughly investigate the claim, or offer a settlement far below the loss’s actual value. 

Bad faith insurance practices can leave policyholders in a vulnerable position, struggling to receive the coverage and benefits they are entitled to under their insurance policies. In such a scenario, an attorney will protect the policyholder’s rights when you have been denied a valid claim without any reasonable basis. They know bad faith insurance laws and are well versed with the tactics used by insurance companies to deny or reduce your claim. Therefore, they can guide you and fight for your rights. 

Bad Faith Insurance Tactics Used By The Insurance Companies

Some Examples of bad faith insurance practices may include the following:

  • Unreasonable Denial of Claims: Insurance companies must always give you a valid reason for denial of claims. If they are denying the claim without a valid reason, you can file a claim against the insurance comapny for the bad faith. 
Example: If an auto insurance company deny the owner of the insurance for vehicle repair for undue reason. 
  • Deliberate Delay: Sometimes, the insurance companies may delay your claim as they know time is important in medical claims. If the doctor has prescribed a treatment that is helpful for you, the insurance company is responsible to provide you insurance amount within reaosnble amount of time. If they do a deliberate delay, they are acting in bad faith. 
Example: Suppose, the doctor has prescribed a surgery for the injured motorist and the insurance company is not approving the request after 3 months. They are deliberately delaying.  
  • Offering less money than the actual claim is worth: Offering a settlement amount significantly lower than what the claim is worth is one of the tactics used by the insurance company to earn profits. However, if they do so they are acting in bad faith. 
Example: Suppose, after an accident the motorist is having an insurance of $15,000 and the insurance company is deliberately offering them $1,000. 
  • Refusing to pay a valid claim: The insurance compnies in some cases may refuse to pay the settlement amount. It means they are liable for breach of the insurance contract and the policy holder may sue them for acting in bad faith despite the insurance policy.
Example: Suppose, after a tornado the home owner’s house is damaged and the insurance company is refusing to pay for the damages despite mentioned in the insurance contract. 
  • Misinterpreting the law: Sometimes, insurance company may not provide the amount that is already mentioned in the policy and misinterpret the laws. In such a scenario, the policy holder may file a claim aganist the insurance company for acting in bad faith. 
Example: An insurance company may tell a policyholder that they are found guilty of the insurance fraud due to making an error on the insurance claim. 

When an insurance company engages in bad faith practices, policyholders may have the right to take legal action to seek appropriate compensation for their losses and damages. Laws governing bad-faith insurance practices vary by jurisdiction, and policyholders need to consult with an experienced bad-faith insurance attorney who understands their rights and options in such situations.

What Is a Bad Faith Insurance Claim?

A bad faith insurance claim refers to a legal complaint or lawsuit brought by an insured individual against their insurance company for alleged bad faith practices. In this context, “bad faith” refers to the insurance company’s failure to fulfill its obligations and duties to the policyholder under the insurance contract terms. When an insurance company acts in bad faith, they have not handled the policyholder’s claim fairly, honestly, and timely.

How Do You Sue An Insurance Company For Bad Faith?

Suing an insurance company for bad faith is a complex legal process that requires careful preparation and consideration. Some general steps to take if you believe you have a valid bad-faith insurance claim are:

  • Gather Documentation: Collect all relevant documents related to your insurance policy, the claim, and any communications with the insurance company. 
  • Consult with an Attorney: Seek the advice of a bad-faith insurance lawyer with experience in bad-faith insurance claims. They can assess the strength of your case, guide you through the legal process, and represent your interests in negotiations or court proceedings.
  • Compose a Demand Letter: Your bad faith insurance attorney can help you draft a demand letter to the insurance company outlining the alleged bad faith practices and the damages you seek. 
  • Negotiate: In many cases, bad faith claims can be resolved through negotiations. Your attorney will discuss this with the insurance company for a fair bad-faith insurance claim settlement.
  • File a Lawsuit: If negotiations fail, your attorney may proceed to file a bad-faith insurance lawsuit against the insurance company. The complaint will detail the allegations of bad faith and the damages you seek.
  • Discovery Process: In this phase, both parties related to the case will exchange vital information and evidence. This may involve depositions, requests for documents, and other forms of information gathering.
  • Trial or Settlement: Depending on the case’s progress and both parties’ willingness to settle, the matter may proceed to trial or be resolved through a settlement agreement.

First-Party vs. Third-Party Bad Faith Insurance Claims

First party claim refers to a claim that you make with your own insurance company. In this claim, you are the insured person and you are claiming the amount to be paid that is already covered. 

Example of first-party claim will be when your house burns suddenly and your home owner’s insurer will be paying for the loss. In case the insurer fails to process the claim on fair basis, you will have to pursue bad faith insurance claim as they are not abiding by their obligation. 

Third-party claim refers to claim that is filed against another individual’s insurance company. Let’s understand this with the help of an example. If your car has been damaged by the negligence of someone else and has damaged your property or caused you injuries, their auto insurer will be responsible for paying for the personal injury damages. This is third-party claim.

In case, the insurer did not act in the good faith, the policy holder has the right to sue for bad faith.  This is the difference between first-party and third-party bad faith insurance claim which may vary by state.

How You Can Protect Yourself Against Bad Faith in Insurance

You can protect yourself against bad faith insurance tactics by documenting every detail. Sometimes, it can be a frustating experience to call the insurance company and you may be unable to prove anything that is told to you by the insurance agent. 

Therefore, it is necessary to keep records of all the bills and other relevant things. You must contact your state insurance department who may help you in certain way. However, if they fail to do so, you may consult a lawyer. They will help you in fighting for your rights.

Talk To An Attorney If  You Are Trapped In Bad Faith Insurance Tactics

An experienced personal injury lawyer may help you assess the validity of your claim, understand your rights, and guide you through the process. They will help draft a demand letter outlining the alleged bad faith practices and the damages you seek and will negotiate with the insurance company to seek a fair settlement.

FAQs On Bad Faith Insurance

If the insurer acts unfairly in paying or processing the claim, they will be liable for bad faith. Some examples may include when an insurer is unwilling to investigate the claim or deny the claim intentionally thereby offering a low settlement amount.
Bad faith denial of a claim means that an insurer is refusing to pay for the damages and is acting in bad faith. In such a scenario, there can be a legal case by the policyholder against the insurer for the bad faith denial of a claim. They can recover damages that had been resulting from bad faith.
In a bad-faith case, three types of damages can be recovered namely contract damages, extracontractual damages, and punitive damages.
Yes, you can sue if the insurer breached the contract. However, you need to understand that not all breaches of contract are bad faith. Some breaches can be simple mistakes such as unfair or deceptive practices that can be rectified.
In general, the insurance carrier may owe you good faith duty and fair dealing while doing any transaction. They also have an obligation to investigate honestly and honor the validity of the insurance claims.