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How the insurance companies beat your bad faith claim

Defenses Against Bad Faith Claims

Insurance bad faith is the term used to describe a claim that an insured person may have against its insurance company for the insurer’s immoral acts of mishandling of a claim. There are many ways that an insurance company can act in “bad faith” toward a policyholder. For example, the insurer can refuse to settle a case, unreasonably delay payment of benefits, wrongfully deny a claim, along with a myriad of other bad faith practices. In similarly unfaithful behavior, policyholders can falsely sue their insurers for bad faith in hopes of getting the coverage they want or acquiring damages from the insurance company.

In order for an insurer to successfully defend against a bad faith claim, they must focus on confirming three things: coverage, investigation that has lead to evaluation of a claim, and initiation of settlement. There is a number of defenses that an insurance company that is being sued for bad faith can use. Listed below are the more common defenses:

• Statue of Limitations: The length of the applicable statute of limitations depends on whether the state characterizes a bad faith claim as one based in contract (with consent) or based in tort (inflicted without consent). If the insurance policy includes a limitations period, some states will hold that the policy’s limitations period applies.
• Insured’s Breach of Contract: An insured’s noncompliance with a contract with their insurer they cannot use it as a defense to a bad faith action.
• Insured’s Bad Faith (not available in all jurisdictions): An affirmative defense that seeks to apportion fault and damages based on comparative bad faith.
• Lack of Coverage or Policy Defense: In third-party bad faith actions, without coverage there can be no bad faith. Even with an insurer’s improper handling of a case, if there was no coverage the insured did not suffer harm.
• Advice of Counsel (available in some states): The insurer relied on advice provided by counsel.
• Insured’s Failure to Mitigate: If a plaintiff has failed to make an effort to mitigate damages after a breach of contract, this can be used as a defense, although this defense is difficult to use because the insurer will have to prove that the insured was able to avoid any harm they suffered.
• Release: If an insurance company rejects a settlement offer, the insured may assign their bad faith claim to a third party in exchange for the third party’s release or agreement not to execute a judgment against any assets of the insured except for the insurance policy. In some cases, courts rule that a release removes the cause of action against the insurer.

Two defenses that are often used, but rarely permissible in court:
• Election of Remedies: Insurers argue that in cases in which the insured includes breach of contract in their bad faith claim should not be considered because the insured has elected their remedy and thus waived a tort claim. Courts that have addressed this issue, however, have held that a tort claim for bad faith is separate from breach of contract therefore the plaintiff can proceed with both.
• Conformity to Industry Standards: Insurance companies argue that they complied with the standards of the industry, however courts do not generally excuse the insurer’s treatment of the insured for this reason.

Bad faith cases are difficult and expensive to defend against, and if handled without precision can lead to an insurer retaining the image of an untrustworthy practice.

Obtain Damages for extreme cases of insurance bad faithAs a community we have come to embrace the idea that insurance companies exist to benefit us. This is not particularly true, as a for-profit company a insurance company’s number 1 priority is to maximize their profit and reduce loss. This is why you may notice if you are older, a smoker, or have a preexisting health condition your rates may be substantially higher. Generally speaking insurance companies will fulfill their duties as required, but there may be times a policy holder is denied their full benefits when they file a claim. By law all insurance companies must deal in “good faith” and fulfill the benefits of legitimate claims. “Bad faith” occurs when a policyholder’s benefits are in someway intentionally minimized or altogether denied.

Examples of bad faith would be:

-Failure to act within a reasonable time frame

-Attempts to undervalue the claim

-Refusing to give a reasonable explanation to deny the claim

-Settling for less than the policyholder is entitled to

-Refusing to conduct a thorough investigation or misrepresenting the facts of the case

If a policyholder is denied the benefits outlined to them and their claim is legitimate, they can sue the insurance company in a bad faith claim if the denial was malicious and intentionally unreasonable or delayed. This bad faith claim will cover the policy holder’s full claim value, all the damages resulting from the delay or denial and the policyholder’s attorney fees. In particularly egregious cases the policyholder may also be awarded punitive damages, otherwise known as exemplary damages. This will be some sort of payment usually given completely to the policy holder to discourage the insurance company from repeating the same actions and further penalizing them.  Bad faith insurance tort claims are unique in that unlike a standard breach of contract claim, tort claims are entitled to exemplary and punitive damages. The result would be that the policyholder could receive substantially more than the original claim and their losses was worth.

Punitive damages are awarded to compensate for the policy holder’s mental, emotional, physical and monetary distress; and to punish insurance companies who delay or deny claims without a reasonable cause. However bad faith insurance claims and punitive damages can involve costly expert analysis and legal witnesses as well as a thorough understanding of insurance law. If you feel that you may be eligible for punitive damages in a extreme bad faith insurance case speak to a personal injury attorney who specializes in bad faith insurance claims. They have the legal knowledge and resources to make sure that you receive fair compensation for your injuries, distress and loss of past and future income. On average those who hire the services of an attorney receive 3 times more than people who represent themselves.

Insurance companies are notorious for their bad faith tactics. Some will go as far as retroactively canceling your insurance policy after you have filed a claim. Unfortunately for policy holders, insurance companies are in the business of quickly generating profits and denying pay outs to those who qualify for the benefits outlined in their contracts. The following acts by an insurer are examples of First-Party and 3rd-Party Bad Faith.

First party bad faith deals with claims made by policy holders. The refusal of an insurance company to pay a claim without a reasonable basis, or failure of an insurer to properly investigate the claim in a timely manner, can constitute a case in first party bad faith. Specifically, the insurer’s actions can include the following:
• Deceptive practices or deliberate misrepresentations of records or policy language to avoid paying claims
• Inadequate claims processing and failure to follow the standard investigative guidelines of verifying the insured’s proof of loss, investigating the claim and inspecting the site of the loss, determining the coverage, appraising the amount of the loss and paying or denying the claim
• Improper or inadequate claim investigation (in many cases this means that the insurer will simply believe either party rather than conducting a proper investigation)
• Delay in payment
• Unreasonable denial of claim, which may be based on an equally unreasonable demand for proof of loss.

Third party bad faith claims are made when a policyholder has been sued and the policyholder’s insurance company has failed to act reasonably to settle the claim, or has failed to properly and timely investigate or defend the claim. The following are things that an insurer can do to act in alignment with third party bad faith:
• Failure to settle a case in which a judgement is entered in excess of the liability protection
• Failure to defend an policyholder if a contract exists that includes provisions which require the insurer to act in the policyholder’s defense
• Negligent handling of defense

There are three levels of enforcement against bad faith. Firstly, Common Law is the implied duty of good faith and fair dealing. Half of all states recognize a common law tort for bad faith in first-party insurance claims. Second comes State Legislation. Some states have general statutes that prohibit bad faith, some have Unfair Claims Practices Acts which carry further specifications, and others have an insurance commission which regulates insurance claims. Thirdly is the Federal Legislation that governs insurance practices with laws like the Employment Retirement Income Security Act (ERISA) and the Racketeer Influenced and Corrupt Organizations Act (RICO).

If your insurance claim has been unreasonably delayed, or has been denied without justification, or your insurance policy has been canceled by your insurer, you may be a victim of bad faith. Bad faith insurers can be responsible for the following damages: statutory penalties, statutory interest, liability for judgements in excess of the policy limits, attorney fees, emotional distress, economic loss and punitive damages. If you think your insurer has acted in bad faith contact an experienced insurance attorney to understand your right to recover.

Insurance bad faith industriesThe business model for an insurance company should be relatively simple. Individuals pay for coverage in the event that they suffer some form of an accident or financial loss. Being that most people rarely ever need to file a claim but pay for coverage anyway, the insurance company should be capable of awarding those who do file legitimate claims while still operating at a profit.

Unfortunately, insurance companies are in fact businesses. This means that they will often times make decisions not in the best interest for those they insure, but instead in the interest of making the most money they can. The best way for insurance companies to accomplish this is to deny claims even when individuals are rightfully entitled to compensation. Acts such as these are known as bad faith practices and are in fact illegal.

With giant legal teams and vast experience, there are many tricks insurance companies try to swindle their way out of awarding claims. The reason bad faith practices work is because only 5% of denied claims are ever contested. Even if insurers have to endure costly appeals, settlements, and bad faith penalties for that 5%, denying the other 95% of claims still yields higher profits.

Whether you are up against an auto, medical, health, homeowners, disability or life insurance company, do not let you and your family get bullied around. If you have suffered financial loss you know should be covered by your insurer, research a capable and experienced insurance lawyer immediately. Insurance companies need to be held accountable for upholding contractual agreements just like everyone else and an insurance lawyer can help make this happen.