Insurance Bad Faith FAQs
- What is insurance bad faith?
- Why is insurance bad faith important?
- What types of damages are available in bad faith insurance lawsuits?
- What is the difference between first-party and third-party insurance bad faith claims?
- I think my insurance company may be acting in bad faith. What should I do?
- Why do insurance companies act in bad faith?
- Can my insurance company deny a claim?
- I need to make a claim with my insurance company. What should I do?
- What is the duty to defend?
- I received a low offer for an insurance claim. Is this bad faith?
- How much is my bad faith insurance claim worth?
- Is there a statute of limitations for bad faith insurance lawsuits?
What is insurance bad faith?
An insurance policy is a contract between the policyholder and the insurance company. Every insurance policy includes an “implied covenant of good faith and fair dealing,” which requires that the insurance company act in good faith toward the policyholder. When an insurance company violates this covenant by acting in bad faith toward a policyholder, the policyholder may have the right to file a lawsuit against the insurance company that includes both tort (personal injury) and contract claims.
Bad faith is broadly defined as dishonest dealing. Examples of bad faith practices by insurance companies include:
- Denying payments without a reasonable basis
- Discounting payments without a reasonable basis
- Delaying payments without a reasonable basis
- Failing to affirm or deny coverage of claims within a reasonable time
- Failing to conduct proper, prompt, and thorough investigations into claims
- Making burdensome requests for documentation
- Misrepresenting the law or policy language
Why is insurance bad faith important?
If an insurer is found to have acted in bad faith, the policyholder may be entitled to recover an amount greater (and in some cases, much greater) than the insurance policy limit, or the amount of the claim that was wrongly denied by the insurance company. Bad faith insurance lawsuits not only serve the purpose of compensating the insured, but can also discourage insurance companies from acting in bad faith in the future.
What types of damages are available in bad faith insurance lawsuits?
In a successful bad faith insurance lawsuit, and depending on the type of insurance claim that was unreasonably denied, a policyholder may be able to recover statutory damages in an amount two times the amount of the unreasonably denied claim; statutory interest from the time the claim was wrongfully denied attorneys fees; damages for damage to credit; emotional distress; economic damages; personal injury damages; damages for outrageous conduct; consequential damages; and punitive damages.
Punitive damages are damages awarded by a court to punish a defendant’s harmful conduct. In Colorado, punitive damages may be awarded for a bad faith breach of an insurance contract if the breach is accompanied by circumstances of fraud, malice, or willful and wanton conduct.
What is the difference between first-party and third-party insurance bad faith claims?
A first-party bad faith claim arises when a policyholder makes a direct claim with his or her insurance company, and the insurance company, in bad faith, denies or refuses the claim, delays the claim, or pays only part of the claim. If you are a policyholder and believe that your insurance company is acting in bad faith, you should contact a bad faith insurance lawyer to discuss your rights.
I think my insurance company may be acting in bad faith. What should I do?
If you believe that your insurance company is acting in bad faith, you should contact a bad faith insurance lawyer to discuss your rights. You may have a civil claim against your insurance company.
Make sure to document your interactions with your insurance company. Take notes during and after phone calls with insurance company representatives. Save any emails you exchange with your insurance providers. Ask your insurance company to provide support in writing for its decisions.
Why do insurance companies act in bad faith?
In general, when insurance company deny claims unreasonably and in bad faith, it is for economic reasons. The less money insurance companies pay their policy holders on their claims, the more money the insurance company keeps for itself.
In attempting to reduce the overall amount of money paid to claimants, insurance companies sometimes act in bad faith. Most policyholders do not bring bad faith insurance lawsuits against their insurance companies. Therefore, insurance companies are willing to “gamble” on acting in bad faith with respect to certain claims because they may never be held accountable for their actions.
Can my insurance company deny a claim?
Insurance companies have the right to deny claims where the policyholder has violated the insurance contract, where the claim is not covered by the insurance policy, or the claim is fraudulent. If your insurance company denied a claim and you believe the denial may have been unreasonable or in bad faith, contact a bad faith insurance lawyer to discuss your rights.
I need to make a claim with my insurance company. What should I do?
If you need to make a claim with your insurance company, you should submit your claim as soon as possible after the triggering event (such as an auto accident; damage to your home; receipt of medical bills or a referral for medical services by a doctor). It is also helpful to contact an agent at your insurance company immediately to notify him or her of your claim. Review your insurance policy for relevant provisions. Carefully document your claim and any interactions you have with your insurance company. You have a duty to cooperate with your insurance company, but is always best to have an attorney before giving any formal recorded statements regarding your claim. You should answer any questions your insurance company asks truthfully, completely, and accurately.
What is the duty to defend?
Insurance companies have a duty to defend, which means that insurance companies must provide legal representation to a policyholder in a lawsuit that seeks damages within the scope of the insurance policy coverage. If your insurance company is not defending you in a lawsuit, you may have a bad faith claim against your insurance company.
I received a low offer for an insurance claim. Is this bad faith?
When an insurance company intentionally offers an unreasonably low settlement, this could be a basis for a bad faith claim. Insurance companies must deal with policyholders in a reasonable, fair manner. If your insurance company has engaged in intentional “low-balling” during the claim settlement process, you should contact an attorney to discuss your rights.
How much is my claim worth?
Jury verdicts in bad faith insurance lawsuits can range from thousands to millions of dollars. The jury will consider the financial losses you suffered as a result of your insurance company’s bad faith conduct, the severity of the insurance company’s conduct, and in some cases, your mental pain and suffering and in some cases damage to your physical or medical condition as a result of the insurance company’s conduct.
Is there a statute of limitations for bad faith insurance lawsuits?
Generally, the statute of limitations for a bad faith insurance lawsuit is two years from the date of the insurance company’s bad faith conduct. However, it can be very difficult to determine when a claim for bad faith against an insurance company accrues (meaning when the statute of limitations begins to run). You should contact an attorney right away if you believe your insurance company is acting in bad faith. A delay could result in your claim being barred by the statute of limitations.
Disclaimer: Information provided on this site is NOT formal legal advice. It is generic legal information. Under no circumstances should the information on this site be relied upon when deciding the proper course of a legal action. Always get a formal case evaluation from a licensed attorney if you think you might have a personal injury lawsuit.