Consumers and businesses alike are commonly mistreated by insurance carriers. Insurance policies are intentionally confusing and ambiguous, giving the insurance companies the edge over consumers and businesses.

When an insurance company sells you an insurance policy, they are obligated by law to act in "good faith." This means that when you make a legitimate insurance claim they have to make reasonable efforts to pay you. This duty is also referred to as the "Covenant of Good Faith and Fair Dealing."

An insurance company can only deny an insurance claim if they have a made a fair and reasonably thorough investigation which showed that your claim was not covered by the insurance policy.

If your insurance company denied a claim without properly investigating it or acted unreasonably, then they have acted in "bad faith." Bad faith applies to just about every type of insurance policy, including:

• automobile insurance
• workers’ compensation insurance
• health insurance
• disability insurance
• life insurance
• homeowners insurance
• property insurance
• commercial insurance

Types of Insurance Bad Faith
There are several types of bad faith that can be committed by insurance companies. Types of insurance bad faith may include the following:

• Denial of insurance benefits due under a policy;
• Failure to promptly investigate or failure to properly investigate a claim;
• An unreasonable delay in payment of benefits due;
• An unreasonably low offer to compensate justified damages;
• Paying for only part of a claim or limited benefits;
• Non-disclosure of policy benefits to the insured;
• Wrongly interpreting the language of the policy in order to deny coverage;
• Denying all claims when they are first filed.

All of the above actions by an insurance company, and more, are considered fraud or "bad faith".

Liability for Advertising
When an insurance company has used advertising and solicitation materials that are unfair or deceptive, some states provide legal protection to the policyholders for any deceptive trade practices. In other states, only the words in the actual policy are actionable and falsely written advertisements do not give rise to a cause of action against the carrier.

Liability of Agents
What an agent says in terms of "puffing" or exclaiming the virtue of a policy is often not actionable, except in the circumstances where an agent assumes additional duties, has a special relationship of trust with the buyer, or holds himself/herself out as having special expertise, then a special duty arises.

But when an insurance agent gives assurance of proper coverage and it turns out to be false, that agent will be held liable for negligent misrepresentation. An insured is not required to independently verify the accuracy of representations made by the agent regarding the policy and an agent can be held liable for intentional or negligent misrepresentation.

Duty to Deal Fairly with Insureds
Every insurance contract contains an unwritten or implied term referred to as the covenant or promise of good faith and fair dealing. This is a promise imposed by law upon an insurance company to always act fairly towards its insureds in handling their claims. Whether or not such a clause is included in the policy, judges will read the policy as if it were there.

Insurance companies must meet the reasonable expectations of the policyholder and an insurer must always give as much consideration to the financial interests of its insureds as it does to its own financial interests.

In bad faith cases a jury is always asked whether, under the facts of that case, the insurance company acted reasonably. Denying benefits, delaying payments, and paying less than what is owed are examples of bad faith. An insurance company is obligated to thoroughly and promptly investigate all claims and must inquire into all the possible issues that might support an insured's claim. This obligation is not terminated simply because the insured files a lawsuit against the company. Where an insurer makes a belated offer of settlement, a cause of action for bad faith does not correct or set aside the previous wrongful conduct. Any payments to the insured only reduce the amount of the insurance company's final liability as it may determined by a jury.

In a bad faith action an insurance company's business practices or common course of conduct is routinely admissible to show motive, opportunity, intent, plan, knowledge or the absence of a mistake or an accident in the manner in which it dealt with its insured. It is not necessary to show that the insurer intended to cause harm in a breach of the covenant of good faith and fair dealing. The policyholder need only show that the insurer failed to honor the agreement and had no cause not to pay what was due under the contract.

When a person buys an insurance policy, the very risks that are insured against make it clear that if a claim is not satisfied the policyholder will suffer financial pressure and emotional distress.

Policyholders obviously will be vulnerable to oppressive tactics by a carrier and insurance companies are presumed to know that a denial of benefits will likely result in emotional distress to their insureds.

Duty to Defend a Lawsuit and Duty to Settle
When a person or company is sued and they have insurance to cover the claim, the insurance company is required to pay for the attorneys’ fees and costs to defend the claim. If an insurance company denies payment for these expenses it could be liable for any damages caused by that failure to defend the lawsuit.

An insurance carrier also has a duty to its insured to settle a claim fairly and for a reasonable amount based on the facts of the case and the damages involved. When determining whether to settle a claim, the insurer must give as much consideration to the financial interests of its insured as it does to its own financial interests. In addition, where a claim is potentially in excess of the policy limits, an insurance carrier has a duty to keep the insured informed and advised of all developments in the claim and give the insured a reasonable opportunity to participate in making a settlement of the claim.

An insurance company can be held liable in bad faith for failure to advise its insured in detail of the consequences of not accepting a settlement and of any conflict of interest between the insurance company and its insured with regard to the settlement.

Damages that can be Collected
Where a policyholder successfully shows that an insurer breached the covenant of good faith and fair dealing, the insured can recover all damages caused by the breach. This includes all economic losses, loss of use of the insurance proceeds, general damages, attorneys' fees, and in cases of egregious and outrageous misconduct, punitive damages.

To recover for emotional distress it must be shown to have been caused directly as a result of the insurer's conduct. Normally, once actual economic loss is established, the policyholder is entitled to recover damages for emotional distress as well, as long as that injury was caused by the insurer's breach of the covenant of good faith and fair dealing.

Federal Law – ERISA
The Employee Retirement Income Security Act of 1974 (ERISA) governs most employee benefit plans including disability insurance, life insurance, medical insurance, and pension benefits provided through one's employer.

ERISA has specific procedural requirements that must be met prior to filing any lawsuit for benefits under the plan. The primary hurdle in filing a lawsuit is to make sure you exhaust all administrative reviews or appeals provided for in the plan.

Though these administrative reviews/appeals are oftentimes a roadblock to filing a lawsuit, they can also be a benefit to perfecting your claim. It is an opportunity to place as much documentation supporting your claim as you can into the claim file. Generally, if information is not contained in the administrative claim file it cannot be relied upon later in a lawsuit.

Bad faith claims are complicated and difficult to pursue. Additionally, the laws that determine what bad faith is vary from state to state. An experienced lawyer will know how to prove that an insurance company acted in bad faith, and properly evaluate the value of your case. A lawyer can also help you navigate through the complicated legal process if you need to settle a claim or bring a lawsuit.

Time Limits on Filing Suit
Every case has a statute of limitations that will apply. It varies by the type of case and the state where the case is filed. Don't wait until there is trouble or until the end of your case to get a lawyer. Your attorney would prefer to be involved every step of the way, to monitor your case, to guide you, to prevent trouble, and to assist you.

Irwin & Boesen, P.C. represents persons who have been mistreated by insurance companies. Please contact us for a free case evaluation.