Our Firm handles cases where there is a dispute between an individual policy holder and insurance company about payment of a claim. Insurance policies are intentionally confusing and ambiguous, giving the insurance companies the edge over consumers and businesses. Oftentimes, an insurance company will wrongfully deny an insurance claim. Under the covenant of good faith and fair dealing, implied in all insurance contracts, this mistreatment or fraud is termed “bad faith”. Bad faith is when the insurance company does not abide by the terms and conditions of the insured’s policy and willfully refuses to pay a legitimate claim for damages. Even when an Insurer admits that a claim or lawsuit is covered by the insurance policy, they consistently try to underpay a claim.
What Is Bad Faith Insurance — and How Can Lawyers Protect People From It?
Most people rely on their insurance companies to be there when they most need them. If a serious property loss or medical misfortune strikes, insurance coverage is often the only financial lifeline available.
However, some people are on the receiving end of a terrible surprise: The insurance coverage they expected to be there has been declined, and their insurer refuses to pay out. In some cases, insurers who attempt to renege on coverage do so in a way that is unethical or illegal — a category called “Bad Faith Insurance.”
Fortunately, the legal system provides a way for victims of bad faith insurance to make themselves whole.
How Bad Faith Insurance Works
Insurers may refuse to pay out on a policy (or refuse to make a timely payment) by misrepresenting the language within their insurance contract. Here’s an example of a Bad Faith Insurance scenario:
Mrs. Jones takes out an insurance policy that pays out if she becomes unable to work through injury or sickness. This policy is a supplement to her standard healthcare policy. Mrs. Jones later becomes injured while riding a jet ski and cannot work for six months. However, her insurer declines her injury claim, citing jet ski riding as a “high risk activity” that is specifically excluded from her policy. Yet Mrs. Jones was not informed of this exclusion by the insurer at the time she signed the policy, because her insurer was operating in bad faith.
Other common bad faith tactics include:
- Not informing the policyholder of the limits of their coverage.
- Placing unreasonable demands on the policyholder to prove that a loss occurred.
- Intentionally undervaluing claims
- Unreasonable denials or delays
- Giving no reason for a denial or delay
- Failing to perform adequate investigations
- Lack of communication
- Misleading clients about legal deadlines
- Threatening clients or urging them not to hire an attorney
What Should Victims of Bad Faith Tactics Do?
Fortunately, the law offers robust protections for people who are victimized by bad faith tactics. In California, victims can choose to file a first party lawsuit against an insurer (if the insurance policy is their own) or a third-party lawsuit (if the policy belongs to another person). California’s bad faith insurance laws are considered to be among the strongest in the United States.
Victims and their attorneys can pursue legal remedies under California law, and if it is proven that the insurer engaged in bad faith, victims may be awarded compensation for their total financial loss, attorney’s fees, emotional distress and punitive damages in some cases.
It’s important to realize that a simple difference of opinion between a policyholder and insurance adjuster does not always rise to the level of bad faith. However, behavior that is similar to the tactics outlined above are usually a signal that bad faith activity may be occurring.
If you believe you’re been affected, the first step toward being made whole is a consultation with a California bad faith insurance attorney.