Insurance companies and policyholders agree to a number of terms in an insurance contract. For example, a company might agree to insure a business’s manufacturing plant in the event of a disaster such as a flood, in exchange for the corporation paying monthly premiums to the insurance company.
What’s more, every insurance policy in California is deemed by law to contain an “implied covenant of good faith and fair dealing.” This means the insurance company is supposed to treat policyholders fairly. Unfortunately, this does not always happen.
What is insurance bad faith?
Quite simply, the phrase “insurance bad faith” means an insurance company handled its policyholders’ claims in an unreasonable way. In other words, the insurance company did not uphold its end of the bargain (as implied in the insurance contract).
Examples of insurance bad faith in California could include an insurance provider that unreasonably denies coverage of a claim that is clearly covered by the insurance policy, a delay in paying an insurance claim, or refusing to defend the policyholder if the policyholder is sued and has coverage in case of suit (liability coverage). Other examples include paying less than the value of a claim (underpaying a claim) or refusing to authorize reasonable and necessary medical treatment.
If an insurance company engages in bad faith practices, a policyholder has options. The policyholder can try to deal with the insurance company directly with letters or phone calls, or they can contact state agencies, such as the California Department of Insurance, for help. Not surprisingly, these communication attempts often go unheard and, in many cases, a policyholder’s best option is to consult an attorney. The attorney may recommend bringing a lawsuit against the insurance company for, among other things, violating the terms of the insurance contract.
It is possible to sue for:
– contract damages (damages to give the policyholder what the parties agreed to), such as costs to repair a building after a fire;
– bad faith (tort) damages (compensating the policyholder and making him or her “whole” again), such as emotional distress or loss of time from work due to cleaning up the damaged property; and
– punitive damages (damages that do more than simply compensate the policyholder. They also serve to punish the insurance company and to deter it from further wrongdoing), which could be awarded with a showing that the insurance company acted with malice, oppression, or fraud.
Each type of damages may be available, but only a consultation with an experienced insurance bad faith attorney can help policyholders determine an appropriate strategy to resolve their claims.