< Library - Insurance                                                     
Insurance Bad Faith

WHAT IS INSURANCE BAD FAITH AND HOW ARE CONSUMERS PROTECTED?

     Consumers buy insurance in order to have security and peace of mind for themselves and their families. In return for their premium dollars, consumers receive a promise. When insurance companies issue a policy, they promise their policyholders that they will be taken cared of when they suffer a serious loss to their home, their car, or their health. In the case of life insurance, these companies promise that the beneficiaries will be provided the benefits when they die. For issuers of disability policies, they promise that payments will be made in the event of inability to work due to sickness or injury.

     The difficult or crisis situation that consumers find themselves in when they file a claim makes them especially vulnerable when insurance companies unfairly deny or delay the payment of legitimate benefits under a policy. Because of the special nature of insurance policies, the insurance companies that issue these contracts have a duty of good faith and fair dealing under the law. This duty is so important that the law calls it a covenant of good faith.

     Pursuant to this duty or covenant, the company is obliged to deal fairly and in good faith with its own insured. It has the duty to protect the interests of its insureds in the same manner that it would protect its own. It is obliged to conduct a prompt, fair and reasonable investigation with a view of providing consumers their benefits under the insurance contract

     A company which violates this duty of dealing in good faith can be held liable for what is known as insurance bad faith. This occurs when the company betrays or reneges on its promise to pay when these losses occurred. The law allows various remedies to the insureds. If the insurance company unfairly denies or delays a claim in "bad faith," it not only has to pay the policy benefits, but also additional damages such as emotional distress and attorney's fees. In some other case where there is malice, fraud or oppression as these terms are defined under the law, these companies can be held liable for punitive or exemplary damages.

     What are instances or examples of insurance bad faith? Various claims settlement practices by insurers which are considered unfair or unreasonable are enumerated under the law, including:

     1. Misleading policyholders about facts or insurance policy provisions;

     2. Failing to respond promptly to communications from policyholders;

     3. Failing to set reasonable standards for investigation and processing of claims;

     4. Failing to accept or deny claims within a reasonable time;

     5. Refusing to settle claims in good faith after liability has become reasonably clear;

     6. Forcing policyholders to sue in order to recover benefits by making settlement offers substantially lower than the amounts recovered in the lawsuits;

     7. Failing to explain the factual or legal reasons for denying claims;

     8. Advising the policyholder not to retain an attorney. (California Insurance Code)

     The process of claims handling involves substantive or procedural technicalities where the consumer is at a disadvantage against the experienced adjuster or attorney representing the insurance. In certain cases, it will additionally mean the investment of significant amounts of money and resources. Experts and consultants may have to be retained in the course of the investigation. If it becomes necessary, a court action needs to be prosecuted.

     Having a fully paid policy is one thing. Obtaining your full policy benefits is another. If you file an insurance claim and find that your insurance company is using any of these unfair tactics, it is wise to level the playing field by consulting an experienced insurance attorney.

© Law Offices C. Joe Sayas, Jr.