What is Insurance Bad Faith?

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Aug 5, 2019

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Insurance bad faith is a type of lawsuit that levels the playing field for consumers when they go up against big insurance companies. Sometimes, consumers who file a claim with their insurance company after paying their premiums for many years find that the insurance company will avoid or delay paying out on their policy.

This can be frustrating and expensive because it seems to leave the consumer with nowhere to turn. However, with the help of an experienced attorney, a consumer can file a lawsuit against the insurance company for bad faith.

In a successful insurance bad faith lawsuit, a consumer can recover damages far in excess of policy limits, including emotional distress, punitive damages, and attorney fees. For many years, courts awarded damages up to the limit of the consumer’s policy, while holding the consumer to a duty of good faith, which allows the insurance company to cancel a policy if it can prove that the consumer withheld or failed to disclose some information on the policy application.

Fortunately for consumers, courts and legislatures in several states have now created a cause of action that allows consumers to sue the insurance company when the insurance company acts in bad faith. The court can rule that an insurer has acted in bad faith when:

  1. The insurance company fails to either pay or deny a claim within a reasonable time;
  2. When the insurance company fails to respond to letters and phone calls in a timely manner;
  3. When the insurance company fails to notify the consumer in writing precisely why a claim is being denied specifying each contract term or provision upon which it is relying to deny the claim;
  4. When all the insurance company does is try to find reasons to deny a claim instead of looking for a basis to pay it, and
  5. When the insurance company fails to “play fair”. That does not mean a company has to pay a claim if it has good reason to deny it. To recover on a bad faith claim, the consumer must prove that the insurance company caused physical or financial injury by failing to pay a legitimate claim

Contact an experienced bad faith attorney as soon as you suspect your insurance company is acting in bad faith.

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