There have been lots of disasters in the news recently. Fires in Southern California, hurricanes in the Southeast, earthquakes, floods, the list goes on. With all of the hurdles that life throws at us, insurance coverage remains a very important issue.
There has always been philosophical tension at the heart of the concept of insurance. On the one hand, insurance companies are there to help you in your time of need. On the other hand, the way that insurance companies make money is to minimize the amount they help people. If an insurance company fails to offer what was promised to you after you signed a policy and paid the premiums, the legal community refers to that as "bad faith".
Here are a few things to keep in mind with bad faith lawsuits against insurance companies.
Insurance companies are considered to have a "fiduciary" relationship with the policyholder. That means most states expect them to act within the best interest of the beneficiary. If they fail to act in that best interest through failure to pay, unreasonable delays, etc., then state laws allow them to be sued in court. They are also prevented from trying to deceive insured customers, conceal potential benefits, or place undue pressure on them to get them to settle for less than they are entitled to. In short, when a policyholder files a claim, the insurance company should work under a starting presumption that the holder is entitled to coverage, and should not be of the mindset of coming up with excuses to deny such coverage unless there was a clear violation of the policy that each party was aware of.
Naturally, a policyholder is entitled to act in good faith also. Insurance fraud is a problem that insurance companies are legitimately concerned about. Knowingly defrauding an insurance company can result in criminal charges as well as fines. Do yourself a favor - don't try it.
When a claim is filed, companies are required to fulfill it or deny it within a reasonable amount of time. If they deny it, they must state the precise cause of the denial and cite the language in the policy that allows them to do so.
Each state has its own set of laws regarding insurance regulation and bad faith claims. Different states may have different statutes of limitations and procedures for filing claims against insurance companies. Some states have insurance commissioners who help to regulate the insurance companies. If you feel that your own insurance company has acted in bad faith, you should consider consulting with the department of insurance or insurance commissioner in your state. Some states even prevent private lawsuits against insurance companies and require that they be brought through the office of the insurance commissioner. But even if this is not the case, you should notify the office of your insurance commissioner so that it is aware that there is a complaint regarding an insurance company doing business in the state.
For those who are able to sue insurance companies directly, fighting an insurance company in court is usually not something you want to do on your own. These are companies with lots of legal and financial resources (including those for appeals). Your best bet from the start is to hire an attorney with experience in insurance litigation.
Bad faith lawsuits may involve claims for both "compensatory" damages as well as "punitive" damages. Compensatory damages involve the money that the insured policyholder would have been entitled to, had the insurance company paid off the claim from the start. This gives the policyholder the benefit of what was originally agreed to. However, if that was all plaintiffs were ever entitled to in bad claims litigation, then the insurance companies might not have much incentive to act in good faith. Litigation might end up being more profitable for them over the long run, especially with regards to large multi-million dollar claims that they are responsible for. To prevent this, plaintiffs may be able to ask for additional punitive damages, to punish those companies who knowingly act in bad faith, and send a message that such behavior won't pay for them in the long run.
In addition, to "compensatory" and "punitive" damages, some states may allow you to sue for "consequential" damages as well. In other words, if you can prove additional damages that were caused by the fact that the insurance company failed to deliver on its agreement, you might be entitled to those sums as well (in addition to the underlying sums from the insurance policy itself). Court costs and attorneys fees would likely be covered under consequential damages as well.
When contemplating suing for bad faith, make sure that you keep a copy of all relevant insurance policies as well as any correspondence between you and the insurance company.
An insurance company is there to help you in your time in need. But at the same time, their desire to maximize profits may occasionally tempt them to look for ways to deny coverage on policies. If you feel that you are being unfairly denied coverage on an insurance policy that you have been paying premiums on - fight back. Consult with an appropriate attorney and find out what your options are.
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[Note from HandelontheLaw.com: This article is to be used as an educational guide only and should not be interpreted as a legal consultation. Readers of this article are advised to seek an attorney if a legal consultation is needed. Laws may vary by state and are subject to change, thus the accuracy of this information can not be guaranteed. Readers act on this information solely at their own risk. Neither HandelontheLaw.com nor any of its affiliates shall have any liability stemming from this article.]
