Insurance Bad Faith – What Is It Exactly?
Insurance bad faith, also called insurance fraud, refers to the mistreatment of consumers and businesses by their insurers. 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. Several insurance companies rely on statistics when deciding how much they have to pay out in specific circumstances. Even if an insured person is entitled to a certain amount of cash, the insurer may still not want to pay it in full. Either the individual or entity accepts the insurer’s decision or brings the matter to court for bad faith.
The following are the three most common insurance bad faith scenarios:
> 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 – insurer and insured – are both obliged to follow what is in the 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. In certain states, statues or other regulation exist, covering bad faith by insurance providers.
When bad faith is exhibited by these companies, they may be subject to punitive damages, government penalties and statutory damage. Different laws affect bad faith claims in different states, so anyone having related problems with their insurers should talk to a lawyer.
Insurance companies pay different bad faith damages, depending on the jurisdiction. Generally, the damages will be equivalent to the compensatory damages an insured party would have received from the insurer a non-bad faith setting. In a number of states, punitive damages – damages intended as punishment for an insurer’s bad conduct – also apply. In some states, punitive damages come under a cap, but not in other states where there are no limits. Because insurance fraud or bad faith can be a complicated and often confusing matter, anyone considering to go to court due to such experience must seek assistance from 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 insurer has acted in bad faith in relation to your policy claim, your first step is to see an insurance lawyer who can define the steps you must take.