Bad Faith Insurance Law
Bad faith insurance law is a patchwork of state and federal laws and case decisions that pertain to the conduct and practices of insurance companies. There are many ways that an insurer may act in "bad faith" toward a policyholder. When an individual, a couple or a family enters a contract with and pays premiums to an insurance company, the insurer has the legal duty to act in good faith, dealing fairly with the policyholders and their claims.
Laws to Combat Bad Faith Practices
Unfortunately, specific examples of bad faith practices by insurers of all types—e.g., life, auto, property and business insurance—are too numerous to list completely. A few categories are when an insurance company:
- does not promptly or thoroughly investigate a claim
- refuses to settle a case
- shortchanges benefits
- unreasonably delays the payment of benefits
- uses an unreasonable interpretation of the policy's terms
- wrongfully denies a claim
- passes a claimant's case around to different adjusters as a stalling tactic
A Fiduciary Duty to Act in Good Faith
There is no single bad faith insurance law that governs the actions of all insurance companies, nor is there an established code of conduct for insurance companies. However, the body of bad faith insurance law requires that insurance companies uphold their fiduciary duty to act in good faith and fair dealings in all transactions involving their policyholders.
Good faith and fair dealing principles imply that insurers have a responsibility to act in good faith, searching for ways to honor, rather than deny, a policyholder's claim. When an insurer fails to act in good faith, bad faith insurance law states that they are in breach of contract and may be responsible for all resulting damages.
ERISA — A Federal Law with Bad Faith Insurance Provisions
An example of a law that has provisions to deal with insurance bad faith is ERISA (the Employee Retirement Income Security Act). This complex federal law sets standards for the protection for individuals in most of the voluntarily established, private-sector retirement plans (pensions) in the U.S.
An ERISA bad faith insurance provision requires that insurers discharge their duties in the interests of plan participants and beneficiaries. A failure to uphold this fiduciary duty may qualify as a personal liability for the individual or group that acted in bad faith.
Remedies for Losses Due to Bad Faith Practices
When policyholders suffer due to an insurer's bad faith, the relevant insurance law enables them to pursue a remedy. A civil lawsuit can be pursued for compensation for losses (restitution). Punitive damages may also be awarded when intentional or malicious wrongdoing is found.
The bad faith insurance laws which apply to an individual's case depend in part on the:
- type of insurance
- specific bad faith practice being alleged
- jurisdiction where the practice took place
- numerous other variables
If you suspect or have confirmed that your insurance company has committed a violation of bad faith insurance law, it is in your best interest to speak with a qualified bad faith insurance attorney who will thoroughly evaluate your claim and fight to recover the compensation you are entitle to. To schedule a private consultation with an attorney in your area, contact us today.
Be assured your matters will be in experienced & caring hands.
