Insurance Bad Faith – What Is It Exactly?
Insurance bad faith, also called insurance fraud, refers to the mistreatment of consumers and businesses by their insurers. It often applies to cases in which an insurance company does not want to pay out a settlement to an insured person or entity.
Insurance bad faith is unfortunately a widespread occurrence. 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. Either the individual or entity accepts the insurer’s decision or brings the matter to court for bad faith.
The following are the three most common insurance bad faith scenarios:
> 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 and fair dealing,” which may be implied or directly stated. That means both parties have their respective obligations to follow what is stated in the contract.
This contract dictates that the insurance company compensate the insured party fully and in timely fashion when it is appropriate, where failure to do so is tantamount to violating the good faith and fair dealing covenant. In some states, there are statutes or other regulations that govern bad faith by insurance firms.
When bad faith is exhibited by these companies, they may be subject to punitive damages, government penalties and statutory damage. Because there are different bad faith-related laws in different states, it is important for anyone with these issues to consult with 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 kind of case is typically accepted on contingency basis by an attorney. That means the attorney will not be receiving payment directly from the client – not even from the award of damages he receives – but rather from the money that the court will order the insurer to pay the lawyer in a separate judgment.
If you believe your insurance company has acted in bad faith on your policy claim, talk to an insurance lawyer who can outline the steps you can take.
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