Key Points:
- Bad faith insurance claims are created when insurers fail to uphold their responsibility to act in good faith toward their policyholders, thus providing a basis for policyholders to file lawsuits for unfair treatment.
- Factors affecting the worth of a bad faith claim include the level of wrongdoing by the insurer, the amount of the original claim, and possible consequential/emotional distress damages.
- Counseling with an attorney is a necessity in order to navigate the complexity of bad faith insurance claims, obtain relevant evidence, and maximize the opportunity for a fair recovery.
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Understanding Bad Faith Insurance Claims
Insurance bad faith claims are created when insurers breach their contractual responsibilities toward their policyholders and therefore commit a violation of their obligation to act in good faith and treat their policyholders fairly. The requirement of an insurer to act in good faith and treat its policyholders fairly is a component of the insurance contract that obligates the insurer to treat its policyholders fairly and in accordance with the provisions of the insurance contract. When an insurer engages in activities such as the unjustified denial of a claim or the unreasonable delay of a claim, the insurer breaches this obligation and allows for the creation of the insurance company’s bad faith claims.
Policyholders have a right to dispute such bad faith claims. Both statutory laws and common-law principles that govern bad faith insurance claims provide mechanisms for policyholders to seek redress. Understanding these rights and the obligations of insurers can assist in holding them accountable and ensuring fair treatment.
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The Principle of Good Faith and Fair Dealing
The principle of good faith and fair dealing is a core element that is essential to insurance contracts. This principle ensures that the insurer treats its policyholders in a truthful and equitable manner, communicates clearly with its policyholders about the status and reason for the claims made, and conducts a fair investigation of each claim. The implied covenant of good faith and fair dealing obligates insurers to reasonably investigate and to act fairly toward policyholders and avoid engaging in bad faith practices.
Violations of this duty can subject insurers to serious liability and can give rise to bad faith claims. An understanding of the principle of good faith and fair dealing can help policyholders identify when their rights are being abused.
Examples of Insurance Companies’ Use of Unfair Tactics
Insurance companies use many dishonest tactics that violate fair principles when treating claims. Many common bad faith tactics include:
- Delays in paying claims force claimants to settle for less than their true loss.
- Lowball settlement offers that are significantly less than the claimant’s actual loss; and
- Others that place claimants in a difficult position and require them to accept a poor settlement.
The way an insurance company treats its policyholders (either unfairly or dishonestly) can have a great effect on the value of a bad faith claim. Recognizing these tactics and identifying other indicators of bad faith can assist claimants in protecting their rights and pursuing effective legal remedies against the insurance company.
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Examples of Other Indicators of Bad Faith Tactics
These common examples illustrate how to identify bad-faith actions by an insurance company and take the appropriate steps to contest these unfair actions.
Assessing the Value of a Bad Faith Insurance Claim
Determining the value of a bad faith insurance claim is determined by a variety of important factors, including the severity of the insurer’s misconduct, the amount of the original claim, and potential consequential or emotional distress damages.
Jurisdictional State Laws Impact Value of Bad Faith Claims
The jurisdiction in which a bad-faith insurance claim is filed can also impact the value of the claim. The level of compensation available for a bad faith insurance claim varies from one jurisdiction to another, and some jurisdictions limit the amount of damages available for a bad faith claim. Determining the relevant jurisdiction(s) in which to file a bad faith claim is an important factor in assessing the value of a bad faith claim.
Original Claim Amounts Influence Bad Faith Claims
The original amount of the insurance claim is a key factor in determining the potential value of a bad faith insurance claim. In most instances, a larger original claim will result in a larger bad faith claim if the insurer mishandles the claim. The original claim amount establishes the potential total value of a bad faith insurance claim, and the specific circumstances of an individual’s claim (i.e., the errors of the insurer and their effects) play a major role in assessing the value of the bad faith claim.
Additional Damages
Damages arising from the bad faith actions of the insurer that are not part of the original claim are referred to as “consequential” damages. Consequential damages include additional costs, such as rental cars or hotel rooms, that are incurred by the policyholder due to the insurer’s delay. Also, lost income can be incurred by the policyholder if they cannot access necessary services and equipment while waiting for the insurance company to make a decision on their claim. Consequential damages can be substantial and add to the total value of the bad faith claim.
Emotional Distress and Punitive Damages
Emotional distress can arise as increased anxiety and concern for individuals dealing with bad-faith insurance claims. Damages relating to emotional distress include the anxiety and concerns experienced by the policyholder, and can significantly affect their quality of life.
Punitive damages can greatly increase the value of a bad faith claim, especially in cases where the insurer has engaged in egregious misconduct. These damages are punitive in nature and are intended to penalize the insurer and discourage future misconduct.
Documentation of the Actions of the Insurance Company
Evidence of the actions of the insurance company is essential to prove a bad-faith insurance claim. Evidence must show that the insurance company knew or should have known that there was no reasonable basis to deny the claim. Documenting the actions of the insurance company is essential to proving that the actions were not errors but rather intentional bad-faith actions.
Protection of Interests and Challenging Unfair Practices by Insurance Companies
Documenting the actions of the insurance company assists policyholders in challenging unfair actions by insurance companies and protecting their interests. Statutory bad faith claims provide policyholders with a source of relief when faced with problems such as unreasonable denials of claims or unreasonable delays after suffering property damage. Legal representation will further aid in establishing a successful outcome.
Record Keeping of Communications with Insurance Company
Maintaining detailed records of all communications with the insurance company can strengthen your case against bad-faith actions. Documenting communications with the insurance company creates a clearer picture of the behavior of the insurance company and strengthens your case in a dispute.
Historical Patterns of Behavior by Insurance Companies
The historical pattern of an insurance company’s behavior in similar matters can also affect the perceived strength and value of a bad faith claim. The documentation of communications with the insurance company will be used as evidence in support of your claim and will provide evidence of the insurance company’s past behavior.
Establishment of the Duties of the Insurance Company
Texas law establishes that insurance companies have a duty to act in good faith and to treat their insureds fairly. The duty of the insurance company is established by both contract law and state statute. When an insurance company fails to fulfill its duty, it may be operating in bad faith. Establishing the insurance company’s duty requires reviewing the insurance contract and understanding the terms and conditions of the contract.
Duties of the Insurance Company
The duties of the insurance company include:
- A fair and timely investigation of claims;
- Provision of clear and accurate information about the insurance contract and the claims process;
- A fair and timely decision on claims; and
- Timely payment of valid claims.
If the insurance company fails to perform these duties, it may be operating in bad faith.
If a policyholder believes his insurance company has been operating in bad faith, he may pursue legal action and seek reimbursement for his losses.
Representation by Counsel
Hiring a competent attorney can greatly improve the likelihood of success in obtaining compensation for a bad-faith insurance claim. Hiring an attorney with experience in representing clients with bad-faith insurance claims can help you navigate the complex process of asserting a bad-faith insurance claim, gather evidence to present your claim, and negotiate a fair settlement.
Counseling with an attorney provides leverage against the insurance company and will allow you to receive fair compensation and to hold the insurance company accountable for its actions. Your attorney can represent you throughout the entire legal process, assist in negotiating a settlement, and represent you in court, making the process of filing a bad-faith insurance claim easier and less complicated.
Types of Recoverable Damages in Bad Faith Claims
Typically, recoverable damages in bad-faith insurance claims are categorized into three main categories:
- Contractual damages — these damages relate directly to the insurance contract.
- Extra-contractual damages — these damages are additional losses that go beyond the insurance contract.
- Punitive damages — these damages are to punish the insurance company for their bad-faith actions and to deter future bad-faith actions.
Large amounts of damages have been awarded in high-profile cases of bad-faith insurance claims, such as a $200 million judgment for a wrongfully denied health care claim.
Not only do damages award compensation for monetary losses suffered by the policyholder, but they also serve to punish the insurance company for its bad-faith actions and to prevent it from committing bad-faith actions in the future. The knowledge of the different forms of recoverable damages can help policyholders seek fair compensation.
Bad Faith Insurance Claims
Bad-faith insurance claims are essentially the original amounts owed by an insurance company to a policyholder. In a bad-faith claim, policyholders can seek the original amounts due to them according to their insurance contract (i.e., a $100,000 loss plus applicable interest).
These amounts are directly related to the insurance contract and represent the first stage in obtaining the compensation that policyholders are entitled to in accordance with the terms of their insurance contracts. It is necessary to understand contractual damages to properly analyze the merits of a bad-faith claim.
Extra Contractual Damages
Extra-contractual damages are the additional monetary and non-monetary harms suffered by a claimant resulting from the bad-faith actions of his/her insurer. Extra-contractual damages are those amounts over and above the limits of coverage provided for in the insurance policy.
Examples of extra-contractual damages include direct economic loss and/or indirect economic loss and/or mental/physical distress resulting from the insurer’s bad-faith actions (e.g., denial, delay, or underpayment of a legitimate insurance claim). By way of example, an insurer’s bad-faith actions can cause a claimant to suffer economic hardship in the form of lost wages and other increased costs.
Texas law permits recovery of reasonable attorney’s fees incurred in pursuing a bad-faith claim against an insurer, which can add to the total recovery of the claimant. Consequently, policyholders can seek just compensation for all their losses and be made whole once again.
Punitive/Treble Damages
Treble and punitive damages are imposed upon an insurer to punish the insurer for egregious or outrageous conduct, and to deter the insurer and its agents from engaging in similar conduct in the future. Punitive damages in bad-faith insurance claims are used to punish the insurer and prevent the insurer from engaging in similar bad-faith conduct in the future.
Factors Which Make Each Bad Faith Claim Unique
Each bad-faith claim is affected by the individual facts and circumstances of the case, so each bad-faith claim is different. The uniqueness of each bad-faith claim makes it difficult to establish a standard for valuation.
Examples of the factors that make each bad-faith claim unique include: (1) State law, and (2) the specific facts of each claim.
Understanding the individual elements of each bad-faith claim is important to allow the policyholder to accurately assess the merit of their claim and pursue fair and just compensation for their losses.
Individual Circumstances
The nature and extent of the wrongdoing committed by the insurer are a major element in establishing the value of a bad-faith claim. The extent of the wrong committed by the insurer directly affects the financial and emotional impact of the wrong committed by the insurer upon the policyholder.
The individual circumstances of each claim and the wrongful conduct committed by the insurer will determine the value of a bad-faith claim.
Insurance Company Conduct
The conduct of the insurance company is a major element in establishing the value of a bad-faith claim. Where the insurer has engaged in unfair or dishonest conduct, such as delayed payments or unjustified denials of valid claims, the value of the bad-faith claim will increase.
Where there is disparate treatment of policyholders, i.e., where one policyholder receives sufficient compensation and another policyholder receives less than adequate compensation for substantially similar claims, the value of the bad-faith claim will likewise increase. Holding insurance companies accountable for their conduct is important to ensure that the public is treated fairly and that policyholders receive fair compensation for their losses.
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Common Myths About Bad Faith Claims
Here are several common myths regarding bad faith claims that can confuse both policyholders and insurance companies. An awareness of these myths will assist both parties in resolving disputes in a more productive manner.
Separating Fact From Fiction
MYTH # 1: A bad faith claim is simply an attempt by the policyholder to abuse the system by attempting to obtain money from the insurance company without regard to whether the policyholder was damaged.
FACT: A bad faith claim is a claim by the policyholder alleging that the insurance company breached its contractual obligation to deal fairly with the policyholder. The breach of this duty results in loss of trust and a violation of the policyholder’s rights.
MYTH # 2: Bad faith claims are only for large insurance claims.
FACT: Bad faith claims can be for either small or large insurance claims. The value of the bad faith claim is determined by the amount of the original insurance claim, the actions of the insurance company, and the impact of those actions upon the policyholder.
MYTH # 3: Bad faith claims require an insurer to engage in intentional tortious conduct in order to create liability.
FACT: Liability can arise in a bad faith claim based upon either intentional or unintentional actions by the insurer. A finding of bad faith exists when the actions of the insurer result in harm to the policyholder.
Why Consulting With a Bad Faith Insurance Lawyer Is Important
When confronted with the bad faith actions of an insurance company, consulting with a bad faith insurance lawyer is important. Experience and leverage against the insurance company can significantly improve the chances of achieving a positive resolution to the dispute.
Evidence gathering is critical in bad-faith claims. Using the services of experienced lawyers can also have a significant impact on the ultimate decision in a bad-faith claim. Lawyers provide assistance in navigating the complexities of the claim and assisting the policyholder in recovering the compensation that they are entitled to.
Case Evaluation
Attorneys representing policyholders in bad-faith insurance claims provide weight and leverage against the insurance company. Attorneys are more likely to force the insurance company to take the claim seriously, which allows them to develop a stronger claim against the insurance company. In addition, attorneys have the ability to evaluate the specific circumstances of the claim, gather evidence, and negotiate for increased compensation.
Wyly & Cook offers complimentary consultations to assist clients in evaluating their bad faith claims and provide professional assessment and evaluation of the potential for success.
Navigating Legal Complexities
Policyholders need the assistance of a bad-faith insurance lawyer to assist them in navigating the complex legal processes and negotiations associated with the claim. A lawyer serves as an advocate for the policyholder and guides them through the process of filing a complaint, negotiating a settlement, and providing representation in court.
Lawyers have the expertise to simplify the complicated legal processes associated with bad faith insurance claims, and to ensure that the claim is processed in compliance with the law and that the negotiations for settlement occur fairly and without the necessity of litigation.
Seeking Help for Your Bad Faith Insurance Claim
If you feel that your insurance company has acted in bad faith, it is important to seek the help of a knowledgeable bad faith insurance lawyer. A bad-faith insurance lawyer can assist you in processing the complex process of a bad-faith claim and fighting for your rights.
A bad-faith insurance lawyer can:
- Evaluate the specific facts and circumstances of your case and advise you of whether you have a viable bad faith claim.
- Analyze the actions taken by the insurance company and identify any actions that demonstrate bad faith.
- Advise you of the most effective steps to take in pursuing your claim and assist you in obtaining the compensation to which you are entitled.
Utilize their expertise to estimate the amount of compensation that you should seek for the harm suffered by you at the hands of the insurance company.
Do not permit the bad faith actions of your insurance company to go unchallenged. Obtain the assistance of a knowledgeable bad-faith insurance lawyer today.
FAQ'S
What is a bad-faith insurance claim?
A bad faith insurance claim is an allegation that an insurer has breached its contractual duties to its insured(s), and thereby failed to act in good faith and deal fairly with the insured(s).
How do I prove a bad-faith insurance claim?
You can prove a bad faith insurance claim by documenting the actions of the insurance company and by seeking the advice of an attorney who specializes in handling bad faith claims.
What types of damages can I recover in a bad-faith insurance claim?
You can potentially recover contractual damages, extra-contractual damages, statutory interest penalties, treble damages, attorney fees, and punitive damages in a bad-faith insurance claim. The damages you can recover include, but are not limited to, direct and indirect financial losses, emotional distress, and penalties for the insurer’s misconduct. This list of recoverable damages indicates the severe consequences of an insurer acting in bad faith.
How does the original claim amount affect a bad faith claim's value?
The value of a bad faith claim is affected by the original amount of the claim. The higher the original claim amount, the greater the potential damages that may be awarded to the policyholder if the insurance company fails to act in good faith.
Why is it important to consult a bad faith insurance lawyer?
It is extremely important to consult with a bad-faith insurance lawyer when dealing with a bad-faith claim. They will guide you through the complex issues and provide the leverage needed to assist you in recovering the compensation to which you are entitled.
