Bad Faith

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Frequently Asked Questions about Bad Faith Insurance

Q: What does bad faith mean in the insurance context?

A: There is really no standard definition of bad faith, but most states define bad faith as unreasonable or unfair conduct by an insurance company. There are a number of actions by an insurer that are considered bad faith by the courts.

Q: What are some examples of conduct that are considered bad faith?

A: The following actions by an insurer are considered bad faith: the unreasonable denial of a claim; inadequate or improper claim investigation; delay in payment; deception; misrepresentation of coverage to avoid paying; conditioning payment of an undisputed portion of a claim on settlement of a disputed portion; failure to communicate; oppressive demands of the insured; wrongful cancellation and nonrenewal of policy; unfair imposition of higher premiums for filing a claim; and exploitation of the insured's vulnerable position.

Bad Faith Insurance - An Overview

There is an implied covenant of good faith and fair dealing in every insurance contract that requires an insurance company to act fairly and in good faith when evaluating a claim. When an insured's (the person covered by the insurance policy) claim is wrongfully denied by an insurer (the entity issuing the insurance), it is considered bad faith. Examples of bad faith include the failure to promptly or thoroughly investigate a claim, inadequate claims processing, unreasonable denial of payment, delay in payment, failure to settle an underlying suit against the insured and failure to defend a suit against the insured. All types of insurance policies, including disability, life, homeowner, automobile and accidental death policies require that the insurer act in good faith. If you believe that your insurance company has acted in bad faith in handling your claim, talk to an experienced attorney about your situation.

Defining Bad Faith

There are a number of actions and omissions that amount to bad faith on the part of the insurance company. One example of bad faith is an insurer's unreasonable denial of an insurance claim. Another example is an insurer's wrongful failure to defend the insured in a suit by an injured third party. The following article briefly explains first-party and third-party bad faith and sets forth several examples of conduct that courts have held constituted bad faith. If you believe that your insurance company has acted in bad faith in handling your claim, talk to an attorney who has experience handling bad faith claims.

Types of Bad Faith Insurance Claims

A bad faith denial of an insurance claim is a breach of the insurer's duty to exercise good faith and fair dealing, which is implied in every insurance contract. There are a number of ways an insurance company may act in bad faith. For more information about bad faith claims, talk to an experienced lawyer.

Defenses to Bad Faith Insurance Claims

There are several defenses that an insurance company that is sued for bad faith may raise. Some of the more common defenses are discussed below. In addition to the defenses set forth below, some states have statutes governing bad faith actions that provide for specific defenses. If you have questions about the possible defenses available to the insurance company in your bad faith action, talk to an attorney.

Procedure in a Bad Faith Insurance Case

If your insurance company denies your claim for benefits, you may wonder what your options are. You do not have to accept that initial denial as the final answer. As a first step, you may ask a supervisor at the insurance company to review the claim and denial. You can also contact your state's insurance regulatory agency about the claim, and finally, you can speak to an attorney. If you suspect that the insurance company acted in bad faith in processing or denying your claim, talk to an experienced lawyer about your situation.

Bad Faith Insurance Resource Links

Coalition Against Insurance Fraud
Information on a variety of insurance fraud topics for both consumers and regulators.

National Association of Public Insurance Adjusters®
NAPIA® provides certification and training services for adjusters.

National Association of Insurance Commissioners
The NAIC® is an organization of insurance regulators from the 50 states, District of Columbia and five US territories. The NAIC's mission is to help state insurance regulators in serving the public interest, promoting competitive markets, facilitating fair treatment of consumers, promoting the reliability and financial solidity of insurance institutions and supporting and improving state regulation of insurance.

ABA® Insurance Claims and Issues
This "blawg" discusses issues related to insurance coverage and to the duties of good faith and fair dealing as presented in claims and as ruled on by courts.

American Insurance Association
Site of the American Insurance Association (AIA), which is the leading property-casualty insurance trade organization, representing 350 insurers.