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 often applies to cases in which an insurance company does not want to pay out a settlement to an insured person or entity.
Unfortunately, insurance bad faith is something that happens 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.
Below are the three common scenarios involving insurance bad faith:
> an insurer refusing to provide all promised benefits to the insured party.
> insurer offering a compensation amount lower than the policy guarantees; and
> unwarranted payment delays.
Each insurance contract comes with a stated or implied “covenant of good faith and fair dealing.” That means the two parties – insurer and insured – are both obliged to follow what is in the contract.
This contract dictates that the insurance company compensate the insured party fully and in timely fashion when it is appropriate, where failure to do so is tantamount to violating the good faith and fair dealing covenant. There are states that have statutes or other regulations that cover 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.
Depending on the jurisdiction, an insurance company may have to pay different bad faith damages. The damages will be generally equivalent the actual compensatory damages the insurer, in a non-bad faith setting, would have paid out to the insured. 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. With insurance fraud or bad faith being complicated and thus confusing, anyone who may want to court because of such experience must seek a lawyer’s help.
Lawyers who accept this type of case usually work on a contingency basis. That means the attorney will not be receiving payment directly from the client – not even from the award of damages he receives – but rather from the money that the court will order the insurer to pay the lawyer 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.
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