Understanding Insurance Bad Faith
Insurance bad faith, also called insurance fraud, is a term that refers to the mistreatment consumers and businesses get from their insurance companies. 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. Plenty of insurance companies depend on statistics when determining how much must be paid out, depending on the given 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.
Three of the most common scenarios involving insurance bad faith are:
> an insurer refusing to provide all promised benefits to the insured party.
> insurer offering a compensation amount lower than 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 both parties have their respective obligations to follow what is stated 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 some states, there are statutes or other regulations that govern bad faith by insurance firms.
When bad faith is exhibited by these companies, they may be subject to punitive damages, government penalties 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.
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 several states, punitive damages, or damages meant to punish an insurer for bad conduct, also apply. Some states put a limit on the amount of punitive damages that may be claimed, while in others, the sky is the limit. 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.
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 believe your insurance company has acted in bad faith on your policy claim, talk to an insurance lawyer who can outline the steps you can take.
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