Everything You Need to Know About Bad Faith Insurance Law

Everything You Need to Know About Bad Faith Insurance Law

When business entities enter into contracts, they have a legal responsibility to act in good faith. The legal contract implies that both parties are expected to fulfill the agreed-upon duties in the spirit of the contract.

Failure to do so results in an immediate breach. As a result, such entities can be sued for violating specific provisions of a contract. This is known as a bad faith lawsuit, where one party fails to uphold a legal requirement. However, understanding the nuances of bad faith statutes takes time.

To learn more about bad faith regulations, here’s a comprehensive guide.

What Do You Mean by Bad Faith?

Bad faith lawsuits are handled in a state’s civil court and are known as actions that may violate a part of your duties as stated in your contract. Imagine a case where the defendant has not acted in good faith toward the plaintiff, resulting in some form of damage.

Good examples of bad faith lawsuits include misrepresentation of contractual terms and language or non-disclosure of insurance provisions.

Willful misconduct is the failure to act regardless of the legal repercussions involved. But such cases are subjective in nature. In contrast, a bad faith lawsuit revolves around the fact that a defendant has acted maliciously and requires proof of such facts.

Both bad faith and willful misconduct feature various levels of recklessness, malice, irresponsibility, ignorance, and intention.

For instance, you pay real estate insurance companies a certain premium to protect your property against damage. Unfortunately, that doesn’t always happen. In a bad faith case, the insurance company will refute your claim.

Should You Issue a Bad Faith Claim?

Bad faith lawsuits come under the statute of limitations.

For this reason, it’s important for plaintiffs to file their claim within a stipulated period. If they fail, they automatically lose their right to claim compensation, though this differs from state to state.

To issue a bad faith insurance claim, your lawyer needs to prove how the insurer has breached any section of the policy. There are a variety of facts you can prove in a bad faith lawsuit, though these can be circumstantial, where the:

  • Defendant neglects contractual obligations because of malicious intent
  • Defendant willfully misleads the other party, causing relevant damage
  • Defendant undertakes legal obligations with no means to fulfill it
  • Defendant violates basic standards of reason, decency, and fairness
  • Defendant conducts dishonest dealings with the opposing party

What Is a Bad Faith Insurance Claim?

A bad faith insurance claim is a case where the plaintiff makes a claim against the insurance company. If the insurer behaves poorly or shows any kind of misconduct while processing your claim, they’ve engaged in bad faith.

Besides this, an insurer can indulge in many behaviors of bad faith that result in this type of claim, including:

  • Denying a policyholder’s claim without giving any kind of justification
  • Offering an unreasonably low settlement that doesn’t equate to the damage
  • Refusing to investigate and understand the claim using the right resources
  • Investigating a claim without proper jurisdiction or legal explanation
  • Refusing to approve or consider any evidence to support the claim
  • Denying liability in a bad faith claim when the insurer is at fault
  • Refusing to provide legal assistance in areas of civil litigation

Duties to Policyholders

All insurance companies are mandated to fulfill a specific number of implied duties to their policyholders, and failure to meet these standards may result in bad faith.

Note that state jurisdictions may hold different perspectives on what constitutes bad faith. For this reason, they may conduct unique tests and evaluate the terms for the violation to determine liability in a bad faith insurance lawsuit.

According to the law, an insurer has significant duties toward the insured, such as:

  • The ability to investigate a claim with valuable findings and evaluations to back the claim
  • The ability to indemnify a claim with a settlement agreement against the policyholder
  • The ability to defend the policyholder in court regardless of the coverage limits
  • The ability to settle reasonably during negotiations without causing any delays

How to File a Bad Faith Claim?

Simply making a mistake doesn’t account for bad faith.

Before submitting your claim, it’s crucial to prove malicious intent by providing substantial evidence to support the basis of a policyholder’s claim.

Most contract cases involving insurance companies occur when the insurer has not addressed their duty of good faith. Regardless of the type of insurance, bad faith practices persist in every industry, from healthcare to automotive.

In fact, most state laws address bad faith practices by making insurance companies pay basic compensation for any damage incurred. In some states, plaintiffs can also leverage common law rules to prove their case in court while dealing with bad faith.

You can recover compensation for any resulting damage and claim other benefits with the help of a reliable attorney. It’s important to demonstrate the harm sustained as a result of a bad faith case, including:

  • Lost wages and potential job opportunities
  • Damage done to a property or real estate
  • Reimbursement for consulting with an attorney
  • Bills for physiotherapy and other treatment
  • Mental and emotional distress, trauma, and more

Protect Yourself Against Bad Faith in Insurance

If you suspect your insurance company is acting in bad faith, here’s what you need to do:

  • Document your complaint: Draft a report that talks about your claim in detail. Add supporting documentation to this file, such as witness statements, medical records, and more. You can even add past correspondence with the insurer or statements and receipts shared.
  • Contact the state department of insurance: Submit a breach of contract claim, accounting details of your complaint in your file. If your case warrants an investigation, evidence will be collected to prove negligence before issuing any penalty charges.
  • Consult a reliable bad faith insurance lawyer: A licensed attorney familiar with your state laws can help you take potential legal action. Plaintiffs are limited to compensatory damage based on where they live, so it’s best to take legal advice from a professional lawyer.

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