Injured plaintiffs are often victims of wrongful delaying, withholding, or denying of benefits by either their own or the injury-causing-party's insurance company known as "bad faith".
Bad faith law requires an insurer who has acted in bad faith to compensate the policyholder the original claim's amount, any other losses resulting from the denial of benefits, and, to deter future wrongful acts, punitive damages.
Types of "Bad Faith"
"First Party" bad faith regards insurance companies' obligation to their injured policyholders to settle claims in a reasonable amount of time and for a reasonable amount of money.
"Third Party" bad faith regards claims made against the injury-causing-party's policy. For example, if you're injured in an accident where someone else is clearly at fault, their insurance company, the Third Party insurer, is responsible for compensating for your injuries and settling the claim in a reasonable amount of time and for a reasonable amount of money.
Examples of bad faith include undue delay in handling claims, inadequate investigation, refusal to defend a lawsuit, threats against an insured, refusing to make a reasonable settlement offer, or making unreasonable interpretations of an insurance policy.
Bad Faith Law and Claims
Because it is among the United States' most powerful and profitable industries, insurance companies wield significant influence over the federal government which has no bad faith law or requirements that insurers act in good faith and fairly with their insureds.
Instead, the insurance industry is regulated by state created bad faith law which deems insurers as having a "fiduciary relationship" - - a special relationship of trust and of acting in good faith - - with policyholders and define "bad faith" as delaying, withholding, or denying policyholder benefits based on legitimate claims filed under valid insurance policies.
Bad faith laws require insurance companies to "adjust", i.e., deny or pay, a claim within a reasonable period of time, cooperate with claimants through all dealings, including promptly responding to policyholder inquiries, and express the exact reason for denying requested benefits by citing the policy provision upon which that decision relies.
Bad Faith Claims and Recovery
When it wrongfully delays, withholds, or denies benefits, bad faith law empowers injured policyholders to seek relief from the insurance company through a tort, or personal injury, lawsuit.
Bad faith law requires an insurer who has acted in bad faith to compensate the policyholder both the original claim's amount and any other losses resulting from the denial of benefits. Further, to deter future wrongful acts, bad faith law provides for recovery of punitive damages from insurance company.