When you buy insurance, it is usually done to safeguard against any form of economic loss caused due to personal injuries or damage to property. Insurance is also useful in case of a lawsuit that may cause losses. A policyholder gains a set of rights that the insurer owes. However, there may be incidents wherein the insurer fails to follow through with its essential duties to the policyholder. Failing to do so is termed as acting in bad faith. So let’s get to know a little more about what happens when an insurance company acts in bad faith.
What Is Bad Faith Insurance?
Bad faith insurance is an insurer’s attempt to back out their obligations to the policyholder or the client. The insurer can do such an act in the following two ways:
- Refusal to pay a policyholder’s claim
- Delaying the investigation and processing of a policyholder’s claim
Apart from the above, insurance companies also act in bad faith when they misrepresent an insurance contract’s language to the policyholder and do not pay a claim. In addition, they will also act in bad faith when they have unreasonable demands on the policyholder to prove a covered loss.
So it is easily understandable that an insurance company can act in bad faith if they behave in any way mentioned above. In such cases, the work of a lawyer comes into focus.
Duties of Insurance companies to policyholders
Previously, the topic of bad faith insurance was defined, and the causes of an insurance company acting in bad faith were mentioned. However, only understanding the definition of insurance bad faith is not enough. It is important to also learn about any insurance company’s duties towards the policyholders.
So let’s now take some to understand and discuss the duties of an insurance company to the policyholders. Now here are a few of the most important duties that an insurance company has towards its policyholders:
Duty to investigate
An insurer fails to go through with a proper investigation of a claim and supports their findings and valuation. Also, unreasonable delays directly align with insurance’s bad faith law.
Duty to indemnify
Another duty that breaks the insurance bad faith law is the failure to pay a settlement agreement or judgment entered against the policyholder by the insurer, especially up to the limit of coverage.
Duty to settle reasonably
Some jurisdictions recognize another insurer’s duty. Therefore, a settlement would provide an advantage for the insured. However, a lawsuit that could expose them to damages beyond the policy limit. So, the insurer breached their duty to settle reasonably if they do not agree to settle and hope to minimize their liability during the trial. Therefore, the insurance bad faith law can be cited.
Duty to defend
According to the insurance bad faith law, when an insurer does not defend the policyholder, even after the policy does not cover a major portion of the lawsuit. Therefore, the insurer has failed to live up to its duty to defend the policyholder in such a situation. Therefore, it can be considered as breaking insurance bad faith law.
The insurance provider should properly follow all the above duties so that the policyholder can continue their policy until it matures. However, if any of the above duties have been disregarded, enough cause of action can be taken. These are as mentioned below:
- Breach of contract where the policyholder will be able to place a breach of contract claim on the insurer with the aid of an expert in dealing with bad faith insurance claims.
- Some jurisdictions consider the bad faith on the insurer’s part as an act of tort. A tort is a form of civil wrong where one side causes harm to the other through their actions.
Although both can provide compensatory benefits, jurisdictions that allow a tort claim might also be able to provide further consequential and punitive damages close to the policy’s value.
So far, a lot of information has been provided about bad faith and what happens if an insurance company acts in bad faith. In addition, the duties of an insurer towards the policyholder have also been explained. Now let’s look at some examples of bad faith insurance claims.
Example of bad faith insurance
Before we learn about examples of bad faith insurance, all the information on the definition of bad faith provided answers to “what is bad faith insurance?” and mentioned an insurer’s duties to the policyholder. So now, let’s look at some of the examples of bad faith insurance.
- Delaying or denying decisions on claims or requests for approval of medical treatment
- Denying a claim without reason
- Failure to complete an investigation promptly
- Placing importance over company profits over a policyholder’s claim
- Threatening a policyholder or misrepresenting policy language
These are a few useful examples of bad faith insurance for which a case can be filed. So whenever the insurer acts in bad faith, you can look for a competent lawyer to ensure that your complaints are resolved at the earliest.