Bad Faith Insurance

Bad Faith Insurance
Insurance bad faith, also called bad faith insurance, is a term used to describe a type of legal claim that an individual may have against their insurance company. When an insurance company provides services to clients, it owes a duty of “good faith” and ethical, fair dealing. When companies violate this duty by acting maliciously or unethically, clients may have the legal right to file a claim against the company. Bad faith insurance laws aim to protect consumers from being victimized by wrongful acts of businesses.

What Is Bad Faith?


In most U.S. jurisdictions, insurance companies operate based on an “implied covenant of good faith and fair dealing.” This covenant automatically exists in insurance contracts between insurance companies and the individuals they insure. The covenant creates an agreement that insurance companies will act ethically, honestly, and in the best interest of their clients. Bad faith can indicate actions of insurers that are intentionally fraudulent, deceptive, or duplicitous. While the term typically applies to first party insurance, bad faith insurance may also apply to third party insurance. This can be seen in cases where a non-insured individual, or “third party,” is injured and attempts to collect reimbursement for the injury from the client’s insurance company.

Bad Faith Insurance Examples


Examples of bad faith insurance may include the following actions from insurance companies:

Diminishing, delaying, or denying payment without reasonable basis
Using illegal or fraudulent procedures or methods when dealing with clients
Attempting to settle a claim for less than the amount that is reasonably expected
Failing to deny or confirm a client’s claim within a reasonable time frame
Diminishing a claim requiring a client to begin litigation
Altering applications or policies without proper client notice or consent
Failure to promptly and properly investigate a claim which leads to failure to pay a covered claim
Using inaccurate factual or legal information for diminishing, delaying, or denying a claim payment
Failing to notify clients of arbitration appeals policies in an attempt to decrease the settlement value
Victimizing clients through demeaning, intrusive, or harassing investigation methods and procedures

Determining Bad Faith Insurance


It is important to distinguish whether an action or behavior can be defined as bad faith insurance. For example, it is not uncommon for a client and insurance adjuster to disagree on the potential value of an insurance claim. This situation is not necessarily bad faith insurance. However, bad faith insurance may be indicated if the adjuster refuses to give specific reasons for low settlement offers, or uses improper or illegal settlement tactics. If clients are unsure whether their insurance company has committed bad faith insurance, he or she should speak with an experienced insurance lawyer as soon as possible.