You’ve likely heard the term bad faith tossed around in various spheres. But what does bad faith mean when applied to insurance, and what do bad faith insurance attorneys do for their clients? Oftentimes personal injury attorneys handle bad faith insurance claims in addition to their personal injury cases.
Insurance bad faith refers to intentional, dishonest acts committed by insurance companies such as failing to fulfill legal or contractual obligations, misleading policyholders, making agreements without the means or funds to fulfill it, or violating standards of honesty. Insurance bad faith claims can either be first-party or third-party and states have varying insurance bad faith laws.
This article discusses when policyholders should consider speaking to a bad faith insurance attorney and what a bad faith insurance company can do for their clients in the event they believe insurance companies committed bad faith.
What Is Bad Faith Insurance?
People have insurance to protect against economic losses that come from personal injuries and property damages. Policyholders pay monthly premiums in exchange for various commitments from insurance companies. Insurance companies have to uphold the terms outlined in the insurance policy. All insurance policies carry with them a good faith implication. This implication holds insurance companies accountable for fair dealing and business practices.
However, despite this written acknowledgment, insurance companies sometimes neglect their commitment to good faith insurance practices.
They can engage in the following unfair business practices to guard their profits:
- Deliberately misinterpreting policy language or records to avoid claims
- Prolonging the resolution of claims with the intent to avoid payment
- Making arbitrary demands regarding proof of loss
- Using flagrant tactics to construe claim information
- Asking policyholders to take a settlement when the insured should not
- Failing to conduct a thorough investigation
These occurrences indicate a good faith breach and policyholders might have a case against their insurance company. Bad faith can either be first-party or third-party. First-party bad-faith pertains to an insurance company’s refusal to pay claims without a reasonable basis or proper investigation.
An example of first-party bad faith insurance is someone involved in an accident that the insurance company should cover. The driver involved in the accident calls the insurance company to issue a claim and they say they will investigate the crash. However, your insurer never investigates the accident, and they fail to return your calls.
On the other hand, third-party bad faith insurance involves liability insurance. In third-party insurance cases, insurance companies don’t commit to reasonable evaluations and settlements to ensure the policyholder’s assets are safe. If the injured party gets a judgment that surpasses the insured party’s limits, the insured has the bad faith claim, not the injured party.
Additional Bad Faith Examples
Parties can bring additional bad faith lawsuits against insurance companies in personal injury cases. If insurance companies defend policyholders from liability lawsuits and fail to do so, they can file a bad-faith lawsuit.
How to Know If You Have a Legitimate Insurance Bad Faith Claim
Not every claim classifies as bad faith. It can be challenging to determine genuine bad faith since there are some arbitrary aspects to insurance claims. However, despite there being a lot of room for debate, you should thoroughly review your policy. Insurance policies are deliberately complex and it helps to have a legal professional look them over.
Settlements in Bad Faith Insurance Lawsuits
Bad faith settlements vary depending on the case details. The insurance company’s reputation and any past bad faith claims can affect the payment. Payments are often higher than the monetary amount policyholders would have received from their claim.
This is because the court deems the insurance company responsible for additional damages caused by bad faith practices. Common law allows for punitive damages and this can cause the settlement amount to skyrocket.
The extensive damages are deterrents for companies worth billions and they prevent recurring bad faith practices. The damages have to be high enough to cause the organizations to rethink their behavior. Punitive damages in bad faith insurance suits are different than typical personal injury cases. In personal injury cases, the goal is to make the injured party financially whole.
Fighting Bad Faith Insurance
Bad faith insurance laws vary from state to state. Some laws require insurance companies to pay basic damages for compensation. Others go above and beyond and cover not only the out-of-pocket expenses but also lost wages and attorney fees.
Insurance companies make mistakes. Sometimes, these mistakes don’t qualify as bad faith. In these cases, you should press your insurance company to issue the proper remedy.
Who Can File a Bad Faith Lawsuit?
When you purchase an insurance policy, you become the “party of the first part.” When you become the first party, any claim you file becomes a first-party claim. Some examples of first-party insurance claims include:
- Personal Injury Protection coverage (primarily in no-fault states)
- Uninsured or Underinsured Motorist coverage
The insurance company that issues the policy to the policyholder is considered the second party. If you get injured in an accident caused by someone else and you file a claim with the at-fault person’s insurance company, you’re filing a third-party claim, even both policies are under the same insurance companies.
First Party Claimants
Some states only allow first-party claims. In states such as these, people are only allowed to file claims against their insurance company. The other scenario for first-party insurance claims is if you cause an accident and get sued because your insurance carrier refuses settlement.
Your insurance company has a duty to defend your interests, and if they don’t follow through with payment to the injured party, they might have acted in bad faith.
Some states allow third-party claimants. Even the ones that don’t have “remedies for bad faith insurance. Regardless of whether you have a first or third-party claim, if you believe an insurance company acts in bad faith, you should discuss it with a lawyer. However, before taking your claim to a lawyer, you should try to speak with the insurance adjuster’s supervisor to see if they can assist you.
Conclusion- What Do Bad Faith Insurance Lawyers Do?
Bad faith insurance is a serious offense that can cost the affected parties thousands of dollars. Bad faith insurance attorneys protect their clients from insurance companies that think they can take advantage of the general public.
Whether a first-party or third-party claim, insurance companies have a duty to their policyholder to act in good faith. That means fulfilling agreements and corresponding in a timely manner. If they fail to uphold their responsibilities, you should speak with an attorney to decide the next steps.