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What is a Bad Faith Insurance Claim?

Insurance companies are known for the ways in which they do business. They are all about themselves and their own bottom line, making life as difficult for you as they possibly can.

An insurance company has an entire toolbox of tricks that they use to make your life difficult. However, you have legal rights too.

When insurance companies act in bad faith in the claims process for personal injury cases, you can hold them legally responsible.

First, you need to contact an attorney for a free consultation to understand the duties that the insurer owes you.

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When insurance companies fail to address legitimate claims they may be subject to a ‘bad faith claim’.

How an Insurance Company Operates

An insurance company does not want to pay your claim. To them, when you file a claim, it is a zero-sum game.

In other words, when they pay you the money that you legally deserve, they lose because it comes out of their account. They have shareholders to please, and any drop in their profits costs them money.

Therefore, insurance companies may use some of the following tactics (that border on deceptive practices):

  • Denying claims from policy holders or others who have been injured that have clear merit or for reasons that lack a reasonable basis
  • Delaying approval of a claim or payment
  • Imposing additional paperwork requirements beyond what is required by the policy language in order to pay claim
  • Refusing to make payments that should be very clearly covered by under-insured motorist coverage

The Insurance Company’s Duty of Good Faith

An insurance company cannot simply do whatever it wants to a policy holder or someone else filing a personal injury claim. They have a duty of good faith and fair dealing for tort claims.

This does not come from the policy language itself, but it is more of a common law duty. It is an implied covenant in the dealings between an insurance company and someone filing a claim under an insurance policy.

If an insurance company violates this duty, it can be subject to a bad faith lawsuit.

What Can Constitute Bad Faith?

While insurance companies engage in business functions and have a contractual relationship through an insurance contract, they still have the duty to be fair.

They cannot arbitrarily or unreasonably just to make your life more difficult and to keep from getting money that you legally deserve.

Many of the things that we think of as just the way that insurance companies do business can actually be the grounds for bad faith lawsuits. There is a fine line between being difficult to deal with and insurance bad faith.

The claims process, where there is always significant back-and-forth between the claimant and an insurance company, is not bad faith per se, but it can violate an implied duty when insurance companies take things too far.

Submitting Claims Under Insurance Policies

When you file a valid claim under an insurance policy, the company will assign an adjuster to your case. The adjuster will begin to review the case when you have filed a reasonably clear claim.

They will try to speak with you and review the facts of the accident. When the claim is filed, they will consider what happened and speak with the other insurance company.

The insurance company’s decision will be whether or not to make a monetary offer. Then, they may make a specific settlement offer.

What Insurance Companies Must Offer

When paying claims, insurance companies must compensate you for what you lost in the accident. This includes both your economic and non-economic damages.

Here are some of what compensatory damages include:

  • Medical bills
  • Lost wages
  • Emotional distress
  • Pain and suffering

Insurance companies will pay up the policy limits. However, they may do everything that they can to avoid paying this much. It may even take years for them to make a reasonable settlement offer, if they ever do.

What You Can Do When a Claim Is Denied

An insured person does not have to simply accept the insurance company’s decision when they deny a claim outright or do everything that they can to throw up roadblocks.

You have every legal right to question them and challenge what they have done. If they deny a claim, find out exactly why and try to get it in writing.

You should also research the state statute on what insurance companies must do when you have filed a claim or someone has filed a claim against your insurance.

An attorney can provide the legal resources necessary to understand the state law and your rights under insurance contracts. They could help you when you need to file a bad faith claim.

Bad Faith Litigation Against the Insurance Company

When an insurance company denies your claim, you can file a lawsuit. It does not matter whether you have a contract with them or not. When an insurance company fails to act in good faith, they can be made to pay.

They cannot simply take advantage of their superior knowledge and position to deny claims and avoid paying you what you deserve under an insurance policy.

The Elements of a Bad Faith Claim

When the insurer fails to act in good faith, you must prove the following in order to receive compensation:

  • The insurer withheld benefits under a policy
  • The withholding of benefits was unreasonable

While there are two elements that need to be proven when you are making bad faith claim, it is the second element where you and the insurer will battle it out in court.

They will always have a reason what they have not paid your claim. However, they do not get the final say. A jury will decide your case. This is the same whether it is your own insurance company or the one that covers the other party to an injury.

You Can Sue Under Common Law or State Law

Not only is there an implied covenant of good faith, but there are also state laws that govern what an insurance company can do.

Every single state has insurance laws that dictate what an insurer must do. In Illinois, the insurance code can be found in 215 ILCS 5.

The Illinois Department of Insurance regulates companies in the state. Not only can you file a lawsuit, but you can also file a complaint with the state regulator.

There are also common law duties that these companies have. They must pay claims when the insurance policy applies. If you have been sued, they can take control of the defense, but they have the obligation to defend you.

However, many of the tricks that insurance companies use violate both state and common law. An experienced attorney can hold the insurance company accountable.

Which Companies Can Be Sued in an Insurance Bad Faith Claim

Any type of insurer can be sued for failure to pay an insurance claim. So long as there is some type of contract to provide coverage that is involved in your claim, the insurer owes you a duty of good faith.

This is regardless of whether you or someone else has paid premiums to them.

Here are some companies that can be sued in a bad faith insurance claim:

  • Homeowners’ insurance companies for failing to pay out for things such as fires or natural disasters
  • Your own auto insurance company for making negligent decisions in defending you
  • The other driver’s insurance for not paying your claim
  • A business insurer for unreasonably denying a premises liability claim, such as a slip and fall.

Damages in Bad Faith Claims

Insurance companies must do far more than just make good on their promise to insure damages. When they lose in bad faith cases, they must pay far more in damages.

They will need to pay compensatory damages, and they may even be hit with punitive damages for outrageous conduct.

Here are some elements of damages when insurance companies break the duty of good faith and fair dealing:

  • The money that the insurance company should have paid under the policy
  • Attorney’s fees (this includes both attorneys fees that you had to pay to recover from the insurance company and fees that you may have had to pay to defend against a lawsuit)
  • Defense costs that a policyholder had to pay when the insurance company could have settled a claim against them
  • Emotional distress
  • Any other economic losses that the claimant suffered because the insurance company did not pay the claim when they should have

Other Examples of Insurance Company Bad Faith

There are other situations in which an insurance company can be liable for common law bad faith beyond rejecting a policyholder’s claim.

It also owed a duty to its own policyholders when they deny claims filed against their own insurance policies. One of the most influential Supreme Court cases about punitive damages came from a bad faith insurance claim.

In this case, State Farm did not settle a claim against one of their policyholders and took the case to court. The verdict against the insured driver ended up being for more than the limit of his liability insurance, and he ended up owing nearly $200,000.

The trial court awarded the bad faith plaintiff $145 million in punitive damages against the insurer before the case was appealed to the Supreme Court.

Contact an Attorney for Legal Advice

You should not be trying to deal with an insurance claim on your own. When these companies see you without an attorney, they will take liberties at your expense, regardless of whether it is in bad faith.

In many cases, the only way that they will take you seriously is when they see that you have an experienced attorney working for you.

At Rosenfeld Injury Lawyers, insurance companies respect us because they know our track record and that we will fight for our clients every single time.

Call us today at (800) 424-5757 for your free initial consultation. Once we have formed an attorney client relationship, we will go to work on your behalf.