Smart Ideas: Policies Revisited

Insurance Bad Faith – What Is It Exactly?

Insurance bad faith, also called insurance fraud, refers to the mistreatment of consumers and businesses by their insurers. 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. 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. That means the individual or entity can either accept the decision by the insurer or take the matter to court for bad faith.

The following are the three most common insurance bad faith scenarios:

> insurer denying all promised benefits to the insured;

> insurer offering a compensation amount lower than the policy guarantees; and

> unreasonable delays in payment to insured party.

In every insurance contract, there is a “covenant of good faith and fair dealing,” which is either expressly stated or implied. 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. There are states that have statutes or other regulations that cover bad faith by insurance providers.

When bad faith is exhibited by these companies, they may be subject to punitive damages, government penalties and statutory damage. Bad faith claims are affected by different laws in different states, so anyone dealing with related issues with their insurers must talk to 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. In a number of states, punitive damages – damages intended as punishment for an insurer’s bad conduct – also apply. In some states, there are limits to how much may be claimed in punitive damages; in others, there are none. Because insurance fraud or bad faith can be a complicated and often confusing matter, anyone considering to go to court due to such experience must seek assistance from a lawyer.

Lawyers who accept this type of case usually work on a contingency basis. 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.

Source: bad faith insurance lawyer