Insurance companies have a legal obligation to handle claims fairly and in good faith. When an insurer fails to meet this obligation, policyholders may have a separate legal claim against the insurance company itself, beyond the underlying injury claim. A Martinsburg, WV personal injury lawyer can help policyholders understand their rights when an insurance company fails to handle a claim fairly or in good faith.
What Is Insurance Bad Faith
Insurance bad faith occurs when an insurance company unreasonably denies, delays, or underpays a valid claim. This duty of good faith applies both to an insurer handling its own policyholder’s claim and, in some cases, to how an insurer handles a third-party claim against one of its insured drivers or businesses.
Common Examples of Bad Faith Conduct
Bad faith practices can include denying a claim without conducting a reasonable investigation, unreasonably delaying payment on a valid claim, offering a settlement far below the actual value of the claim without justification, failing to properly explain the reasons for a denial, and misrepresenting policy language to avoid paying a claim.
Why These Claims Matter
Because insurance companies are generally in a much stronger financial position than individual policyholders, bad faith laws exist to prevent insurers from taking advantage of that imbalance. When an insurer acts in bad faith, policyholders may be entitled to damages beyond what the original policy would have paid, including in some cases punitive damages.
First-Party Versus Third-Party Bad Faith
First-party bad faith involves a policyholder’s own insurance company failing to properly handle their claim, such as a homeowner whose property damage claim is wrongfully denied. Third-party bad faith involves an insurer’s handling of a claim brought by someone injured by the insurer’s own policyholder, such as failing to settle a valid claim within policy limits when it had the opportunity to do so.
Proving a Bad Faith Claim
Bad faith claims generally require showing that the insurer had no reasonable basis for denying or delaying the claim and that the insurer knew, or should have known, that its conduct was unreasonable. This often involves reviewing the insurer’s internal claim files, communications, and the reasoning provided for its decisions.
Damages Available in Bad Faith Cases
In addition to the amount that should have been paid under the policy, a successful bad faith claim may result in compensation for additional financial losses caused by the delay or denial, emotional distress in some jurisdictions, and punitive damages intended to punish particularly egregious conduct.
What to Do if You Suspect Bad Faith
Keep detailed records of all communication with your insurance company, including dates, names, and the substance of conversations. Request any denials or delays in writing, and note any inconsistencies in the reasons given for the insurer’s decisions.
Bad Faith Involving Health and Disability Insurance
Bad faith claims are not limited to auto or property insurance. Health insurance companies that wrongfully deny coverage for necessary medical treatment, or disability insurers that improperly cut off benefits, can also be subject to bad faith claims if their conduct falls outside reasonable industry standards.
The Bottom Line
Insurance companies are expected to handle claims honestly and fairly. If you believe your insurer acted in bad faith, understanding this area of law can help you pursue the full compensation you are entitled to. Contact Hayhurst Law PLLC if you believe your insurance claim was handled in bad faith and need help understanding your legal options and pursuing the compensation you may be entitled to.
