Understanding Insurance Bad Faith
Insurance bad faith, also called insurance fraud, refers to the mistreatment of consumers and businesses by their insurers. It is often used in situations where an insurance company refuses to pay out a settlement to an insured individual or entity.
Insurance bad faith unfortunately occurs ever so often. A lot of insurance companies make use of statistics to know how much they need to pay out, depending on particular 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:
> insurer denying all promised benefits to the insured;
> insurer providing less compensation than what is guaranteed by the policy; 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. 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. Bad faith claims are affected by different laws in different states, so anyone dealing with related issues with their insurers must talk to a lawyer.
Depending on the jurisdiction, an insurance company may have to pay different bad faith damages. 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. 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 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.