Insurance companies are in the driver’s seat when it comes to settling a claim. They have greater expertise, negotiating strength, and financial resources than the policyholder. Recognizing this, most courts find an obligation of good faith and fair dealing in every insurance policy.
If your insurance company fails to act reasonably in processing, investigating or paying your claim, you may have the right to file a lawsuit. State law shapes how bad faith in the insurance context is defined. A claim may proceed under common law established by courts, or you may have a claim based on the violation of a state statute. To better understand this legal claim, let’s take a close look at what constitutes bad faith.
Elements of Common Law Bad Faith
The common law elements of bad faith are not the same from state to state. Some states define bad faith as conduct that is “unreasonable or without proper cause.” Other states take a narrower view. Finding liability only where a denied claim is not “fairly debatable” and the insurance company knows this is the situation. Further complicating matters, some states view this claim as a breach of contract, and in other states it’s a tort.
Under a common law torts theory, an insurer owes its policyholders a duty of good faith and fair dealing due to the special relationship between the parties. Proving a common law claim of bad faith target="_blank" generally requires the policyholder prove two elements:
Courts have identified certain actions as bad conduct. For example, the Judicial Council in California provides a list of factors that can be considered in deciding if an insurance company acted unreasonably. The presence of any one of these factor is not conclusive evidence of bad faith, but can help establish your case:
Elements of a Statutory Bad Faith Claim
A lawsuit may allege both a common law bad faith claim and a statutory bad faith claim. A statutory claim is based on a law made by a state’s legislature. Many states have statutes designed to protect policyholders from unfair or deceptive practices by insurance companies. These statutes will detail the type of prohibited actions and the remedies available to the policyholder.
In Connecticut, for example, a policyholder can bring a separate claim for a violation of the state’s Unfair Insurer Practices Act. The policy holder can allege any of the following actions:
Experiencing Bad Faith? Consult with an Insurance Lawyer
There are a variety of insurance company tactics that could constitute bad faith. And the rules on bad faith litigation vary from state to state. If you believe your insurance company acted in bad faith, an experienced insurance attorney can help protect your rights. Consult with a bad faith insurance attorney to see if your insurer is acting in bad faith.