An insurance company is subject to a legal obligation to deal honestly with you, regardless of whether the company insures you directly or you are a third-party claimant. If an insurance company fails to meet its legal obligation of good faith to you by delaying payment or denying a legitimate claim, you will be entitled to not only the fair value of your original claim, but also compensation for the company’s bad faith treatment of you. Without this additional liability, an insurance company would have a financial incentive automatically deny every claim and pay only when it lost a lawsuit to a claimant.
According to attorney Bill Budigan, “a bad faith claim arises when your insurance company, or the insurance carrier that is obligated to pay your claim, unreasonably delays or denies paying a legitimate claim against the policy, whether that claim involves and insurance policy for auto, home, health, life or disability.”
What is “Bad Faith”?
“Bad faith is more than a simple disagreement with your assessment of the value of your claim (which in many cases is inevitable). The good faith standard differs, however, depending on your relationship with your insurance company.
- As a third party claimant: The standard of good faith that an insurance company is obligated to meet is lower when you act as a third-party claimant – that is, you are not negotiating with your own insurance company. This situation may arise, for example, in a car accident claim when you are negotiating with the other party’s liability insurance carrier. To violate its obligation of good faith towards a third-party claimant, an insurance company must normally tell an outright lie or perform an act design to interfere with your ability to pursue your claim, such as destroying or withholding evidence.
- As a direct claimant: An insurance company is held to the highest standard of good faith when negotiate ng with one of its own clients. When you are negotiating with your own insurance company, even a simple failure to mention important information might be enough to establish a bad faith claim. The issue of bad faith might also arise if your insurance company denies an obviously valid claim (or issues a ridiculously low settlement offer) without an explanation, or unreasonably delays negotiating or settling your claim.
Using Bad Faith as Bargaining Leverage
A bad faith claim against an insurance company is difficult to win in court. Nevertheless, a credible assertion of bad faith during settlement negotiations could motivate the insurance company to issue a more reasonable settlement offer to avoid the expense of litigation. A good lawyer will know exactly when and how to use an assertion of bad faith as negotiating leverage, and when to actually file a bad faith lawsuit against the insurance company.
Damages
If you have been a victim of insurance company bad faith, you might end up winning far more than what your claim would have been worth had the insurance company dealt with you honestly. The reason for this is that you have two claims to press – your original claim plus an additional bad faith claim.
It is difficult to say exactly how much a bad faith claim might be worth, because its value depends on the circumstance of your case. If you opted against certain medical treatment options because the insurance company falsely denied liability for the cost of that treatment, for example, you might be able to show that the insurance company’s bad faith caused you catastrophic damages. Generally, your bad faith claim will be worth more the greater the value of your original claim and the more outrageous the conduct of the insurance company was.
Visit this page for more information about claims against insurance companies.
