Why do businesses buy insurance? In essence, to buy peace of mind. Buying insurance, however, is very different than buying other products. When you buy that delicious cup of coffee at Starbucks you can see it, smell it and taste it. When you buy insurance, you hope you never use it, and you put your trust in the insurance company to honor its obligation to your business when the time comes.
What happens when, after years of paying premiums, the time finally comes and your business claim is denied? Did the insurer refuse to pay a claim without a reasonable basis, or fail to properly investigate the claim in a timely manner? Or did the insurer refuse to defend, indemnify or settle a claim within the policy limits without a reasonable basis?
California has some of the most developed laws protecting against insurance bad faith, both statutory (California Insurance Code Section 790.03) and at common law. An insurer that is found to have operated in bad faith could be held liable for damages far in excess of the policy limits. Speak to an experienced insurance bad faith lawyer about the remedies available to you.
Remedies for a bad faith insurance claim
There are three levels of damages in a bad faith claim:
- breach of the insurance contract,
- breach of the implied covenant of good faith dealing (the bad faith part), and
- punitive damages (the expensive part).
If the business can establish breach of contract, damages will generally be the policy benefits plus interest from the date the benefits were due, in a first party case (refusal to pay a claim). In a third party case (failure to defend), it is the amount expended or liability incurred by the policyholder plus foreseeable consequential damages. Additionally, if with the guidance of savvy legal counsel, the business can prove bad faith, the measure of damages is tort damages, which can include other economic losses and perhaps even attorneys’ fees incurred to establish that the business was entitled to contract benefits.
Examples of insurance bad faith
Examples of conduct that may be bad faith include:
- Deceptive practices or deliberate misrepresentations to avoid paying claims;
- Deliberate misinterpretation of records or policy language to avoid coverage;
- Unreasonable litigation conduct;
- Unreasonable delay in resolving a claim;
- Arbitrary or unreasonable demands for proof of loss;
- Abusive or coercive tactics to settle a claim; and,
- Failure to investigate a claim or maintain adequate investigative procedures.
If a business can prove by “clear and convincing” evidence that the insurance company acted with oppression, fraud or malice, it may be able to recover punitive damages with the assistance of a knowledgeable bad faith insurance attorney. Since insurance companies act through people, the plaintiff will need to plead and prove that an officer, director or managing agent acted with oppression, fraud or malice or had knowledge and authorized or ratified the employee’s acts.
What to do if your insurance company is acting in bad faith
If your small business is experiencing any of the bad faith conduct referenced above, it is important to take thorough notes, detail the names of people you speak with the dates and the times. If there are conversations with your insurance representative make sure you document those conversations as contemporaneously as possible, or send e-mails confirming the content of those conversations. Make sure that you keep a copy of everything you provide to the claims adjuster for your claim, including extra copies of photographs. You should also keep a chronology of the events, and any documentation concerning economic losses suffered as a result of the claims process. Finally, make sure that you keep complete copies of all of your insurance policies (not just the declaration pages). These initial measures will help a small business owner in the event a bad faith filing is necessary.
For more information on examples of insurance bad faith or discuss filing a claim, contact Drew E. Pomerance today.
