Understanding Insurance Bad Faith
Insurance bad faith, which also goes by the term, insurance fraud, refers to the mistreatment of consumers and businesses by their insurance carriers. It is normally used in situations in which an insured person or entity is refused a settlement payout.
Insurance bad faith unfortunately occurs ever so often. Plenty of insurance companies depend on statistics when determining how much must be paid out, depending on the given circumstances. Even with the insured person being fully entitled to a certain amount, the insurer may not pay that money in full. That means the individual or entity can either accept the decision by the insurer or take the matter to court for bad faith.
Three of the most common scenarios involving insurance bad faith are:
> insurer denying all promised benefits to the insured;
> insurer offering a compensation amount lower than the policy guarantees; and
> unwarranted payment delays.
Every insurance contract comes with a “covenant of good faith and fair dealing,” which may be implied or directly stated. That means the two parties, the insurer and insured, have to comply with all the terms of their 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 these companies exhibit bad faith, they can be subject to statutory damage, punitive damages and penalties imposed by the government. Because there are different bad faith-related laws in different states, it is important for anyone with these issues to consult with a lawyer.
Depending on the jurisdiction, an insurance company may have to pay different bad faith damages. 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 several states, punitive damages, or damages meant to punish an insurer for bad conduct, also apply. Some states put a limit on the amount of punitive damages that may be claimed, while in others, the sky is the limit. Since insurance bad faith or fraud can be complex and confusing, anyone planning to go to court because of such experience should always consult with a lawyer.
Lawyers who accept this type of case usually work on a contingency basis. That means the client will not be paying the attorney from the damages awarded to him, but rather from the damages that the court will specifically order paid to the attorney 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.