What Is 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.
Insurance bad faith unfortunately occurs ever so often. Plenty of insurance companies depend on statistics when determining how much must be paid out, depending on the given circumstances. Even with the insured person being fully entitled to a certain amount, the insurer may not pay that money in full. Either the individual or entity accepts the insurer’s decision or brings the matter to court for bad faith.
Three of the most common scenarios involving insurance bad faith are:
> insurer denying all promised benefits to the insured;
> insurer offering less compensation than what the policy guarantees; and
> unreasonable delays in payment to insured party.
In every insurance contract, there is a “covenant of good faith and fair dealing,” which is either expressly stated or implied. That means the two parties – insurer and insured – are both obliged to follow what is in the contract.
In such a contract, the insurance company must fully compensate the insured party when appropriate and in a timely manner; otherwise, the insurer will have committed a violation of the good faith and fair dealing covenant. There are states that have statutes or other regulations that cover bad faith by insurance providers.
Companies exhibiting bad faith may be subject to government-imposed penalties, punitive damages and statutory damage. Because there are different bad faith-related laws in different states, it is important for anyone with these issues to consult with a lawyer.
The bad faith damages paid by insurance companies are different, depending on the jurisdiction. In general, the damages will be equivalent to the actual compensatory damages the insured would have rightfully obtained from the insurer in a non-bad faith setting. A lot of states also allow for punitive damages, or damages intended to punish the insurance company for bad conduct. In some states, there are limits to how much may be claimed in punitive damages; in others, there are none. 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.
This kind of case is typically accepted on contingency basis by an attorney. 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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