What Is Bad Faith Insurance Litigation?
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If you ask a group of strangers how they feel about their insurance companies, each person is likely to communicate roughly the same sentiment: Insurers don’t pay out as much as they should.
Although that’s not always the case, and some insurance claims are met with fair settlements, the reality is that insurance companies—overtime—pay out less than they receive in premiums. If they didn’t, they wouldn’t be profitable businesses. And they are very profitable businesses.
Luckily, claimants who are met with bad-faith insurance dealings aren’t without options. By pursuing bad faith insurance litigation, they can secure the compensation they deserve. This article will explain everything you need to know about bad faith insurance litigation, including bad faith insurance practices, their consequences, and how an experienced bad faith insurance attorney can help.
Are you struggling to keep your head above water after your insurer has denied your claim? Our Orange County personal injury attorney team may be able to secure the settlement you deserve. Call our law firm at (949) 409-0055 to explore your options.
Understanding “Bad Faith” Insurance Dealings
In the context of insurance, “bad faith” refers to a scenario in which an insurer fails to fulfill its obligations to policyholders and claimants. It may also include situations in which an insurance company fails to respond or solve claims fairly or timely.
Insurers are required to act in good faith and deal fairly with their policyholders. Bad faith insurance practices directly conflict with this principle and often involve unethical or unfair actions by which an insurer attempts to avoid fulfilling its obligations to policyholders.
Bad faith insurance practices can take many forms. Depending on the specifics of your situation, it may look like any of the following:
- Causing excessive delays. Taking unreasonable time to investigate, process, or pay a legitimate claim without valid reasoning can be considered bad faith.
- Denying a valid claim. Refusing to pay out a settlement for a valid claim without a reasonable justification is a common manifestation of bad faith.
- Offering lowball settlements. When acting in bad faith, some insurers offer significantly less money than what a claimant is owed.
- Failing to investigate. Insurers must conduct a thorough and fair investigation before denying a reasonable claim.
- Avoiding communication. An insurance adjuster acts in bad faith when they intentionally dodge a policyholder. This could include ignoring phone calls, emails, and other inquiries from the policyholder about the status of their claim.
- Deliberately misinterpreting benefits. Intentionally misinterpreting a policyholder’s benefits to deny a reasonable claim is a prime example of a bad-faith insurance practice.
- Altering an insurance policy. In extreme cases of bad faith, an insurance representative may alter the terms of a claimant’s policy to avoid issuing a settlement.
Bad faith insurance practices can occur in any type of insurance, including health, auto, homeowners, and life insurance. When an insurer meets a policyholder’s claim with bad faith, holding them accountable is essential.
What Are The Consequences of Bad Faith Insurance?
Bad faith insurance practices have negative consequences for everyone involved, from the policyholder to the insurer to those trying to find justice through the legal system. We’ll describe some of those specific consequences below.
For the Policyholder
When an insurer acts in bad faith, the policyholder suffers the most. Depending on their situation, they may face serious financial difficulties. They may be unable to pay for medical expenses, critical repairs, and legal costs, the bills for which may be sent to collections. They may fail to seek crucial therapies and treatments because they can’t afford them.
Victims of bad faith insurance practices may also suffer emotional distress, anxiety, and depression. In property or health insurance cases, unreasonable delays or denials may greatly exacerbate their original losses, leading to further damage, health deterioration, and despair.
For the Insurance Company
Bad faith practices may save money in the short term, but they are a terrible long-term practice. Over time, acting in bad faith will cause an insurer to incur legal and financial penalties, and they may pay more in lawsuit damages than they would have by simply paying their policyholder a fair settlement.
Insurance companies who routinely act in bad faith will inevitably suffer reputational damage, losing business and potential clients over time. Bad faith practice may also draw closer scrutiny from regulators and industry watchdogs, resulting in regulatory actions.
Bad faith insurance dealings even affect the larger legal system, adding to the larger caseload and requiring judicial resources to resolve. With broader implications for the legal system, the insurance company, and the policyholders, bad faith is ultimately a lose-lose-lose situation.
Why Pursue Bad Faith Insurance Litigation?
If bad faith insurance practices have harmed you, litigation can be a powerful tool in your fight for justice. Regardless of which practices your insurer’s been using to deny your claim, pursuing bad-faith litigation offers the following benefits:
- The opportunity to recover your claim amount, the original amount that should have been paid out under your insurance policy
- The potential to secure compensatory damages, a settlement designed to compensate you for additional harm and losses you’ve suffered as a result of the original denial
- The possibility of punitive damages, a financial award that is intended to punish the bad-faith actor and deter future misconduct
- The chance to recoup attorney’s fees and legal costs associated with litigating your bad faith insurance case
In addition to financial awards, pursuing bad-faith insurance litigation can be beneficial because it encourages fair practices among insurers. It also allows you to find justice and closure after a long and potentially traumatic battle.
