What is Insurance Bad Faith?
At its core, insurance bad faith is a failure on the part of your insurer to fulfill their end of the bargain. In most cases, insurance companies will attempt to draw out the process for paying claims so as not to have to pay out as much money as possible. In some cases, insurers will deny valid claims entirely. Both of these practices put undue burdens on the insured and can be a cause for a legal claim against the insurer . Some examples where courts have found insurance bad faith involve situations such as: In these and other similar cases, insurers have denied validity of claims where they are clearly covered under the policy, or have avoided paying out on claims by dragging the process out or finding ways to reduce the payout amount. In these and other cases, courts have found ways for injured parties to sue their insurance providers for bad faith if they did not receive the compensation they were due under their policy.
Why Sue Your Insurance Provider
There are many reasons that a policyholder might need to sue an insurance company. The list below contains some of the common ones, but it is certainly not exhaustive:
- Denial of a Coverage Obligation. This would include denial of a claim altogether or the denial of coverage for a particular loss. A denial of insurance coverage can come in many forms, including a letter stating that the claim is not covered under the policy, an insurer’s filing of a declaratory judgment action asking a judge to declare that the policyholder is not entitled to the insurance benefit he or she seeks, and an insurance company refusing to pay a claim after an insufficient payment has been made and informing the policyholder that no more payments will be made for that claim.
- Delay in Payment. In this instance, even though the claim is covered and eventually paid, the insurance company has simply taken too long to pay the claim. While statutorily prescribed time limits are generally the measure by which the timeliness of a claim payment is evaluated, there are multiple grounds upon which a court may determine that an insurer has improperly delayed payment such that a lawsuit is necessary to recover the amount due.
- Insufficient or Inadequate Settlement Offer. Many times an insurance company acts in bad faith when attempting to settle a particular claim. For example, the insurance company may make a low settlement offer. In such cases, a lawsuit may be necessary to recover the full amount of benefits to which the policyholder is entitled. Another example includes an insurer who makes the full coverage payment, but then tells the policyholder this is the only coverage payment and that the insurer will not be providing any additional benefits for that particular loss.
- Recoupment of Prior Payments. This happens when an insurance company notifies the policyholder that prior payments made for a claim are being recouped (taken back) because the insured was either overpaid on the claim or the prior payment was for some other coverage for which the insurer believes it was not obligated.
- QBE v. State of Florida. In this instance, a policyholder files a hurricane claim, the insurer agrees that the claim (or a portion of the claim) is covered under the policy, the insured receives all or a portion of the money, but the insurance company later sues the State of Florida solely because of the insured’s action in making a claim against a policy bought by the corporation due to the state’s mandated property coverage requirements. Such suits are typically brought in federal court and seek reimbursement of amounts the insurer claims the State is contractually obligated to pay as a result of the requirement that insurers provide coverage for Florida risks.
If you have suffered significant economic losses as a result of your insurer acting in bad faith, it may be time to consult with an experienced attorney about resolving your claim through litigation.
Picking the Best Attorney for Your Lawsuit
When choosing a lawyer for your case, there are a number of factors to consider which will affect your ability to sue the insurance company successfully. If you feel that your lawyer is an expert in these types of cases, and you have considered all of the other various factors, then you may have found the lawyer best suited to represent you. However, if you suspect that your lawyer does not have a lot of experience with insurance law, is not particularly familiar with the values of the types of cases that you have, or has not been pursuing lawsuits similar to your own, then you should seriously consider finding another attorney. When choosing an attorney to pursue a lawsuit against an insurance company, you should be looking for someone with the right amount and type of experience. First and foremost, find a lawyer who specializes in personal injury law, and not just any personal injury attorney, one who concentrates his practice on litigation, and specifically, the litigation of cases against insurance companies. Second, find an attorney who has considerable experience pursuing lawsuits against insurance companies. Find one who has brought substantial claims against the insurance company you are dealing with. Be sure to ask how many claims he or she has filed against that company, and their outcome. Make sure that they like that insurance company you are up against, and that they know how to deal with them.
What Happens When You Sue an Insurance Agency
Suing an insurance company requires a good understanding of the process, and that process can begin months before the filing of a lawsuit. The first step is gathering evidence to support your case. Then, you must file a complaint, or a lawsuit against the insurance company. You have to go through the trial process, which may involve several court appearances. After the trial, it may take just as long, or longer, to collect the money the judge has ordered the insurance company to pay to you.
Evidence
The first step in the process is gathering evidence. This includes facts that support your claim against the insurance company. Generally, the sooner you start gathering evidence , the better. Evidence can come in the form of: These types of evidence help create the picture of a situation and provide a basis for your claim against the insurance company. Supporting evidence is the core of your successful claim.
Filing a Complaint
The complaint begins the legal process. It’s a document that describes the problem with the insurance company’s denial of your claim. It states what you are seeking from the insurance company. This is the point at which you will (most likely) hire a lawyer to represent you and file the lawsuit in court. Your lawyer will answer any questions regarding the complaint and the lawsuit you intend to file.
Trial Process
Your lawyer may file a "motion to compel" while gathering supporting evidence and shortly before filing the lawsuit. This is a legal document that asks the judge to order the insurance company to produce the records for your claim. If a judge agrees with the insurance company after reviewing the claims, you can shorten the trial progress by assuming you won’t be compensated for that specific issue. You won’t receive compensation for anything the judge or jury felt did not happen or was caused by the incident.
The trial is simply a series of court dates. Each date has a specific function. Your lawyer will guide you through these dates. Key dates include: The trial ends when all issues are decided and a decision is rendered. Again, at this point a judge or a jury awards damages. It can take some time to receive the award once it’s rendered. It’s possible that you’ll have to enforce the judgment through additional legal means.
Possible Outcomes of the Lawsuit
While I think it is a mistake to sue an insurance company unless it is a last resort, if you bring a lawsuit against an insurance company, you have three possible outcomes: you could settle for a payment, get a judgment from the court that awards you a payment or have the court tell you that you don’t have a right to a payment.
Obviously, the best possible outcome is you get a check. This is possible through an out of court settlement prior to or after the filing of a lawsuit. Or it could come about by you winning your case and getting a judgment in your favor. Of course, the judgment may order the defendant to pay you damages, but it does not necessarily mean that actual money will change hands.
Insurance companies and people defending lawsuits against them do not like to part with money anymore than you do. It is a shame that some insurance companies will not live up to the terms of their policies without our help, but that is the reality. We sue to get a check. But sometimes we sue and we simply get a piece of paper telling us that we are right. At that point, you may be at the mercy of the defendant or their insurance company in whether you actually collect any money. According to a study in 1996 by the U.S. Department of Justice’s Bureau of Justice Statistics, only 61% of all court-ordered judgments were paid in full. Here a few of the reasons that you may not receive a check:
If you choose to go down the road of suing an insurance company, you must be committed to seeing it through, from beginning to end. The outcome of the process is uncertain. The risk is either you or your lawyer might spend months or years working on a case, only to be left with a piece of paper saying that the defendant owes you money. It might be really difficult to collect. Or, worst case scenario, you may be left with nothing. That is why I think suing is a mistake? None the less, if you are facing a situation in which you consider suing, make sure you understand the process and the risks. There are no guarantees.
How to Speak with Your Lawyer
Consulting with your Insurance Claim Lawyer: How to Prepare for the Pro Consultation
The more work you do before the first meeting, the fewer hours you will get charged for. Some of our clients simply show up and sit down. The clients that get great results are the ones who know where they are going and how to get there.
- Start a File. Open a box or bag and dump in all information you have regarding the insurance claim. If something doesn’t seem important, also dump it in the box. It’s better to have too much than too little. As old insurance professionals, we’ve seen from a distance why someone loses. Don’t give an insurance company an opportunity to resolve a claim or deny a claim without going through the hurdles.
- Create a simple outline. Many people do not want to work on the litigation of a claim at home. But in the long run, if you want results, you must spend some time. The days of sit down and let the lawyers do it all are over.
- List the questions you have prior to the consultation. Often times we see parties coming in and they may have some questions they thought about while the file was being created, but do not have them listed out in front. This leads for productivity during the call. Naturally, we as lawyers think of questions to ask the other side which we may not share with our client. But if you have a list, we know where to go, and where you believe the case could go.
- Items to bring (and ones not to bring):
a. Your car
i . If you were involved in an accident, bring the accident report.
ii. Bring medical bills, doctor reports, and medical authorization with the insurance claim number and policy number.
iii. Get a list of everyone involved from the police report and what insurance company they have, and also list their telephone numbers.
b. Your Home
i. Get a copy of the insurance contract.
ii. List your items. Keep a journal of times you called the insurance to get a status update or what they informed you to do.
iii. Take photos of what was lost.
iv. Bring a camera and take photos of the property as-is to document.
- Start a journal. Your memory is good for about 4 months. Take a piece of paper and write down what you did and what you had done about this loss. You don’t need to do this everyday, but do it in intervals. Your actual date of loss may be years ago, but if you do not have a journal, you may very well lose out on any benefits available.
- Take inventory. Prepare a simple inventory of damages. Keep in mind, the older your file is, often times the more work and time it takes for the lawyer to figure out how the loss occurred. Further, the sooner the attorney receives the file, the more those fees and costs can be moved to the opposing side.
- Exchange information. Give your attorney all the information you have. This will allow him/her to quickly see what needs to be done. You will not have the expense of tracking down worthless information.