Insurance Bad Faith – What Is It Exactly?
Insurance bad faith, also called insurance fraud, is a term that refers to the mistreatment consumers and businesses get from their insurance companies. 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. The individual or entity either accepts the decision of the insurer or goes to court for bad faith.
Three of the most common scenarios involving insurance bad faith are:
> insurer denying an insured party all the benefits stated in the insurance policy;
> insurer offering less compensation than what the policy guarantees; and
> unjustified delays in payment to insured.
Every insurance contract comes with a “covenant of good faith andfair 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 some states, there are statutes or other regulations that govern bad faith by insurance firms.
When these companies exhibit bad faith, they can be subject to statutory damage, punitive damages and penalties imposed by the government. 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.
The bad faith damages paid by insurance companies are different, 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 several states, punitive damages, or damages meant to punish an insurer for 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.
This type of case is usually accepted by an attorney on a contingency basis. That means the attorney will not be paid from the client’s award of damages, but rather from the damages that the insurer will have to pay the lawyer in a separate judgement.
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.