Bad Faith Insurance: Understanding What it is and What You Can Do About It

Dealing with insurance claims can be a challenging and stressful experience. However, it becomes more frustrating when your insurance provider denies your claim unreasonably. More so, when it comes to bad faith insurance. Bad faith insurance is when an insurance company unreasonably denies or undervalues a legitimate claim to avoid paying policyholders just compensation for their losses.

This article provides a detailed guide to help you understand what bad faith insurance is, how to identify it, and what you can do about it.

What is Bad Faith Insurance?

Bad faith insurance refers to an insurance company acting dishonestly or unfairly towards policyholders. It occurs when insurance companies breach their contractual obligations and fail to handle claims appropriately.

Average insurance policies provide protection to policyholders against any covered risks. When policyholders suffer a loss, they file an insurance claim with their insurance company. In bad faith insurance, the insurer fails to pay the loss or undervalues the claim unreasonably, putting the policyholder in an unfair position.

How to Identify Bad Faith Insurance?

Identifying bad faith insurance can be challenging, but the following are clues that can indicate bad faith:

Types of Bad Faith Insurance

There are two types of bad faith insurance:

First-Party Bad Faith Insurance

First-party bad faith insurance occurs when an insurance company fails to honor its contractual obligations with the policyholder. This may include unreasonably denying or undervaluing a claim or delaying the claim’s processing. Examples of first-party bad faith insurance include:

• Unreasonable refusal of an insurance claim
• Unreasonable delay or failure to investigate a claim
• Unreasonable refusal to pay benefits

Third-Party Bad Faith Insurance

Third-party bad faith insurance occurs when an insurance company fails to protect the policyholder from potential claims. This may include unreasonably refusing to defend or settle a claim made against the policyholder. Examples of third-party bad faith insurance include:

• Unreasonable failure to settle a third-party claim within policy limits
• Unreasonable refusal to defend the policyholder in a claim

Legal Remedies for Bad Faith Insurance

If an insurance company acts in bad faith, there are legal remedies available to policyholders. Policyholders may take the following legal actions against their insurance company:

Filing a Complaint with the Department of Insurance

When faced with bad faith insurance, the policyholder may complain to the department of insurance in their state. In response, the state’s department of insurance will investigate the complaint and take action if the insurer violates the state insurance laws.

Filing a Lawsuit Against the Insurance Company

If the policyholder is not satisfied with the department of insurance’s response, they can file a lawsuit against their insurance company. The policyholder may also sue for any damages resulting from the bad faith insurance, which may include legal fees and any loss not covered by the original claim.

FAQs

What is the Statute of Limitations for Bad Faith Insurance Claims?

The statute of limitations for bad faith insurance claims depends on the state. In California, the statute of limitations is two years from the date the policyholder knew or should have known about the bad faith insurance.

Can I Sue My Insurance Company for Bad Faith Insurance?

Yes. Policyholders can sue their insurance company for bad faith insurance.

How Can I Prove an Insurance Company Acted in Bad Faith?

The policyholder can prove bad faith insurance by providing evidence that the insurance company did not handle the claim appropriately. This may include evidence of inadequate investigation or unreasonable refusal to pay benefits.

Can an Insurance Company Deny a Claim for Any Reason?

No. An insurance company cannot deny a claim for any reason. They must have a valid reason for denying a claim, and the policyholder has the right to challenge that reason.

How Can I Avoid Bad Faith Insurance?

Policyholders can avoid bad faith insurance by reading their insurance policy carefully and understanding their rights and obligations. They should also maintain accurate documentation and communicate with their insurance company promptly.

Conclusion

Bad faith insurance is a frustrating experience that can leave policyholders feeling helpless. However, policyholders have legal remedies available to challenge bad faith insurance. By reading this article, you now understand what bad faith insurance is, how to identify it, and what you can do about it. If you ever experience bad faith insurance, don’t hesitate to take legal action to protect your rights and receive the compensation you deserve.