Insurance Bad Faith

What Are Some Examples Of Bad Faith Conduct?

The rules on insurance coverage are simple. Essentially, if the insured suffered a loss under an insurance policy issued by the insurer, and the insured presented a claim on that loss, and the insurance company refused to pay, it is considered bad faith. Insurance policies are contracts, and the failure to honor them is a breach of the contract. Each contract carries with it a duty that each party to the contract operate in good faith and deal fairly with the other.

Insurance contracts are special because the insurance company has such an unequal bargaining position when its performance is due that the law has imposed special liability rules when insurance companies act in bad faith. Courts have recognized that insurers are in a special relationship with their insured, and the insurance company must consider the interests of the insured above its own. Bad faith arises when there breach is unreasonable, for instance where the insurer deviates from the rules and standards that are imposed by industry practice, statute or the law. Bad faith can be overt, or may just consist of inaction. Such conduct as one party’s evasion of the spirit of the bargain, lack of diligence and slacking off, willful rendering of imperfect performance, abuse of a power to specify terms, and interference with or failure to cooperate in the other party’s performance are all examples of bad faith.

The California Insurance Commissioner has issued what are known as the Fair Claims Settlement Practices Regulations. Those regulations prohibit discrimination against the insurance claimant. The regulations also impose on the insurer a deadline to accept or deny a claim within 40 days, subject to some exceptions. Denials of claims must be made in writing, and must provide an explanation.

According to the Fair Claims Settlement Practices regulations, insurance companies must properly investigate claims. The failure of the insurance company to fully, fairly, promptly, and thoroughly investigate all of the bases of an insured’s claim is bad faith. An insurer must fully inquire into possible bases that might support the insured’s claim. A “full” investigation means that the insurer cannot seize on some bit of evidence that supports the denial of coverage, when there is other evidence that supports a finding of coverage. A “fair” investigation has been interpreted to mean that the insurance company can’t rely on a biased investigator with a predetermined agenda to support a denial of coverage. Promptness: an insurance company must not delay in its investigation, as courts have found by an insurer failing and refusing to administer a coverage determination simply amounts to “strong-arming” it’s insured.

Likewise, it is bad faith when the insurance company attempts to “low ball” its insured. The insurance company can’t make an offer to settle a claim with its insured that is unreasonably low. Even after litigation has begun, the insurer’s duty to treat its insured fairly continues. Bad faith litigation tactics which impair the just determination of the case

If the insured fails to file suit timely for breach of contract or bad faith following the denial of the claim, then those claims may be time-barred as a matter of law

If the insured fails to file suit timely for breach of contract or bad faith following the denial of the claim, then those claims may be time-barred as a matter of law. While actions on the insurance policy itself must be filed within four years of the breach, a claim for bad faith is subject in California to a two year statute of limitations.

Damages can be substantial for a finding of bad faith against an insurance company. Apart from the contract damages, i.e., the benefit of the bargain, bad faith damages can include general damages for emotional distress, anxiety, and humiliation. Further, the cost of the attorney’s fees incurred by the insured to obtain the benefits of the policy can be awarded. Finally, the insured can recover an award of punitive damages.

For more information on Insurance Bad Faith Claims In California, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (619) 464-1500 today.