Auto, health, home, property, life. We buy insurance to protect the people and things most important to us. When you buy insurance, you are paying for more than just security and peace of mind. You have entered into a contract, and you expect to get the benefit of what you bargained for, should the need ever arise to make a claim. When insurance companies act unreasonably towards your claim, you can take them to court and recover compensation for the full extent of harm their bad faith conduct has caused you.
In California, every insurance contract includes an implied covenant of good faith and fair dealing. Not only must an insurer fulfill its duties under the policy regarding payment of first-party benefits or settling or defending third-party claims, but the carrier must carry out these duties in a good faith, reasonable manner.
Contract or Tort?
Even though the covenant of good faith is implied in a contract, the California Supreme Court held in its Foley decision that tort remedies are proper in cases where insurance policies are involved. The court’s reasoning is based on the fact that insurance is a quasi-public service, that insurers and insureds are in a special relationship to one another, and that insurance policies are basically contracts of adhesion, with little or no ability for a policyholder to negotiate or alter terms. Tort damages are capable of going well beyond damages in a breach of contract action and can include measures such as economic loss, emotional distress, attorney’s fees and even punitive damages in appropriate cases. Economic loss damages could include harm such as the loss of property or delay in receiving medical care, leading to further injury.
If an action taken by the insurer is wrong but not in bad faith, contract-based damages would be appropriate. These would be the benefits due according to the policy plus any special or consequential damages, if they were foreseeable when the contract was executed.
What are Examples of Insurance Bad Faith?
An insurer has a duty to pay valid claims. It is certainly reasonable to expect an insurer to investigate the claim to make sure it is valid, including determining that the insured holds a current, valid policy, and that the claim is covered under the terms of the policy. However, the insurance company cannot conduct its investigation with an improper motive, i.e. solely to find a way to avoid paying the claim.
Common examples of insurance bad faith include:
A new class action lawsuit accuses the California FAIR Plan Assn. of illegally selling home insurance policies that offer subpar coverage for damages related to smoke and fire. The lawsuit was filed last week in Alameda County Superior Court on behalf of four California residents. The class action lawsuit will... Read More »
According to federal investigators, Prudential Financial unlawfully rejected more than 200 life insurance claims over a recent three-year period. Prudential denied the payouts based on a missing form from the application, despite happily collecting premiums for years. Prudential’s unlawful practices concerned supplemental life insurance policies offered as an employee benefit.... Read More »
A Farmers Insurance customer is fighting to uphold a $5.7 million judgment against the company. She accused the insurance provider of bad faith when it denied her full compensation under her auto insurance policy following a car crash. The case is now before the Ninth Circuit Court of Appeals. Barbara... Read More »
Filing a claim for life insurance benefits requires notifying the insurance company that a death has occurred and providing proof of loss as required by the policy terms, usually in the form of an official death certificate. The policy might dictate more specifically what types of documentation must be submitted... Read More »
