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.