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What Is Insurance Bad Faith?

Paper bag ripped revealing "are you covered?" underneath

In the United States, insurance is often a frustrating, but highly necessary part of life. Insurance policies are designed to protect you from financial ruin in a number of ways. There are several types of insurance policies available to you, including:

  • Health insurance
  • Car insurance
  • Life insurance
  • Homeowners’ insurance
  • Renters insurance
  • Umbrella insurance
  • Travel insurance
  • Pet insurance

You may not need to purchase each type of insurance policy, depending on your particular circumstances. But chances are, you likely pay some sort of insurance premium to help protect your assets. The insurance companies you pay owe a duty of good faith and fair dealing to the persons they insure, which means that they must pay a policyholder’s legitimate claims and investigate and process a policyholder’s claim within a reasonable period.

When you incur a loss under one of these policies, you make a claim with the insurance company administering that policy. Unfortunately, insurance companies sometimes deny valid claims in bad faith, violating their duty of good faith.

It is important to keep in mind that this is not the only way bad faith insurance can occur. Read on to learn more about insurance bad faith.

Insurance Bad Faith

Ultimately, insurance bad faith occurs when an insurer tries to retract its responsibilities to you, their customer, as a result of one of the following:

  • Refusing to pay out your viable insurance claim, or
  • Failing to examine and process your claim in a reasonable amount of time.

When an insurance company fails to accurately represent your policy’s language to you in an attempt to avoid paying an eligible claim, the business has acted in bad faith and must be held responsible.

In addition, it is considered bad faith when an insurance company does not divulge your plan’s limitations and exclusions before you buy the policy. Bad faith can also occur when the company tries to force unreasonable demands on you to prove you sustained a loss that is covered under your policy.

There are several ways in which an insurance company can act in bad faith. If you suspect your insurance company has acted in bad faith, contact our office to speak with one of our skilled insurance bad faith attorneys right away. We can help provide the information you need to get started so that you are able to recover the compensation you deserve for your losses.

Insurance Bad Faith Can Occur On Any Kind of Insurance Policy

Any type of contract between you and your insurance company can be impacted by insurance bad faith. However, not all disagreements between you and your insurance company constitute bad faith.

For instance, if you and your insurance adjuster disagree on the adjuster’s opinion of the dollar amount of your losses, bad faith has not occurred unless the adjuster outright declines to provide you with rational reasoning to justify their result.

Additionally, a simple mistake does not amount to insurance bad faith.

However, if your insurance adjuster refuses to take into consideration evidence that supports your basis for the claim and instead only considers the proof that supports the insurance company’s basis for denying your claim, you may have a case against the insurer for bad faith.

If your insurance company fails to respond to your claim within a reasonable period of time, it is considered an act of negligence, and thus may be held accountable for insurance bad faith, whether it is intentional or not.

Your insurance provider must explain why it will not cover your claim or any portion of it in order to avoid operating in bad faith.

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

Insurance bad faith typically happens in regard to either first-party insurance claims or third-party bad faith.

First-Party Insurance Bad Faith

“First-party” refers to the situation when an insurance company has a direct relationship with the insured making the claim. First-party insurance bad faith occurs when your insurance company refuses to pay a claim without a justifiable cause or without adequately looking into the claim within a reasonable period of time.

For instance, if you lose your house as a result of a fire that occurs due to an accident, your homeowner’s insurance policy should cover the damages you incur. When you contact the insurance company, you are told you cannot make any repairs on your property until the insurance company conducts its investigation. You wait and wait, but the insurance provider does not come out to visit your home that is in shambles, and they fail to reply to your correspondence. In this instance, you would likely have a viable first-party insurance bad faith lawsuit.

Third-Party Insurance Bad Faith

“Third-party” refers to when an insurance company defends or settles a lawsuit brought by a third party who suffered a loss covered by the insurance company’s insured. Third parties are limited in their right to sue someone else’s insurance company for bad faith in California because the insurer’s duty is only to its policyholder, not third parties.

Punitive Damages

In most cases, punitive damages may also be awarded to policyholders who experience insurance bad faith. This is done so insurance providers are further incentivized to act in good faith toward the people they provide insurance for.

In the famous example, State Farm Mutual Auto. Ins. Co. v. Campbell, the United States Supreme Court overturned a jury verdict of $145 million in punitive damages against State Farm.

While bad-faith cases may take some time to resolve, it is necessary to hold insurance providers accountable for their wrongdoing. In the Campbell case, a decision was not reached until 22 years after the accident in question, although this, of course, is one of the most extreme examples of lengthy litigation for a bad faith insurance case.

Paying for an Insurance Bad Faith Lawsuit

The idea of a lawsuit against your insurance company can be daunting because insurance companies tend to have a lot more capital to work with than most consumers do. However, that doesn’t mean you should be deterred from filing a lawsuit against your insurance company for bad faith if it has occurred and you suffered losses as a result.

Here at Greene Broillet & Wheeler, LLP, we offer free consultations, so you have nothing to worry about when contacting our firm to discuss the details of your case.

In addition, we work on a contingency fee basis, which means that you won’t pay for anything out of pocket if your case is successful. If we win your case, our attorney fees will be subtracted from the settlement you receive.

It is also important to keep in mind that in the state of California, you may be able to recover part of the attorney fees separately along with the judgment for damages against your insurance provider. But you may only recover up to the level that the fees were acquired as a result of recovering contractual losses (a breach in your insurance policy’s terms) rather than tort damages (a breach of the implied agreement).

We’re Here to Help the Victims of Insurance Bad Faith

If your insurance company has acted in bad faith in any capacity, it is critical that you hold it accountable for its wrongdoing. It is unacceptable for an insurance company to avoid paying out your viable claim, and our team wants to do everything possible to hold this negligence accountable.

Don’t hesitate to reach out to our office right away with any questions you may have. We are ready and willing to help you with your case now.

If you have been negatively impacted by insurance bad faith, call our Los Angeles attorneys at (866) 634-4525 or contact us online. We will fight to recover your full and fair compensation.