Your Insurance in Good Or Bad Faith
As a general rule, in California an insurance company has a obligation to deal with its insured clients in a good faith manner. This means they must deal fairly when a claim is presented. In each and all insurance policies there is an implicit obligation of fair dealing and good faith. Good faith implies that neither the insurance corporation nor the insured will do anything to hurt the right of the other parties to get the benefits of the particular agreement. Good faith shows an obligation on part of the insurance company to consider the interests of the insured as well as its own interests.
The breach of implied obligation of good faith and fair dealing legally requires more than merely denying the policy. In a court of law, a breach of implied obligation requires proof that the insurance company unreasonably or without proper cause deprived the insured party the benefits of the policy that they paid for. There must be more than mere failure to exercise reasonable care. The insurance company can be found liable even if it did not intend to withhold benefits from the insured.
If the insurer negates benefits unreasonably (i.e., without any reasonable statement for such denial), it could be exposed to the full array of tort law, including the possibility of punitive damages. If an insurance company employee believes he or she has made the right decision even though deceptive or evasive in nature, this would violate the policy of good faith. However the company has an even more stringent duty: since omission can constitute bad faith as well, honesty may be insufficient to show good faith. There are too many categories of bad faith to list them all, but some of the ones that have appeared in legal decisions include avoiding the spirit of the agreement, lack of diligence and laziness, purposely delivering faulty performance of the contract, abusing power for naming terms, and interfering with or failing to cooperate with the other party’s compliance.
The examples below will help make the legal aspects of bad faith on the part of insurance companies clearer. With an auto insurance policy case, if an insurance company gives uninsured motorist coverage to their insured and an accident occurs with an uninsured motorist, the insured party has a right to fair and prompt compensation under the particular policy. If the insurance company withholds paying any benefits because it doesn’t believe the insured is injured, the company may be liable for bad faith even if they eventually do pay the claim. An insurer may be guilty of bad faith by not paying a claim in a timely manner. We sometimes see this happen in situations where the insurer forces its own policy holder into arbitration in a bid to decrease the value of a claim that actually exceeds the policy limit. Then payment will only be made after an arbitration hearing decides what the amount of the award will be.
Insurance companies often reject claims for property damages, life insurance benefits, and others based upon irrational interpretation of the insurance policy, which amounts to insurance bad faith. This occasionally occurs when a condition or prerequisite to coverage is not clearly defined by the policy. The insurance company is responsible for explaining and interpreting the language of the policy. When the insurance company refuses to acknowledge the language in the policy or interprets the policy language differently, it can also be liable for bad faith. Keep in mind that any ambiguity found in the policy is generally used against the insurer – the drafter of the contract. As a general rule, the courts interpret disagreements over policy exclusions narrowly and in favor of the policy holder. Therefore, it’s also critical to ensure that policy exclusions be conspicuous, clear, and plain.
It should be understood that while the law generally favors the insured in bad faith cases, insurance companies are not required to pay every claim presented to them. The insurance company has a responsibility to treat the insured party fairly, but also with respect to its other policy holders (and to its stockholders if applicable). It must not waste its reserve funds by paying out unjustified claims.
The amount of damages to which the insured is entitled, assuming bad faith can be shown, must include compensation for all harm that was caused, even if the particular harm could not have been anticipated. The responsibility is on the policy holder to prove their actual damages. But remember, the insured doesn’t have to prove the exact amount of damages that will make up for the harm caused. In these instances, damages may include compensation arising from mental suffering, anxiety, humiliation, and emotional distress. When it is necessary to hire a lawyer to obtain insurance benefits that are due, an insurer may be awarded the amount spent on legal fees. In addition to recouping the attorney fees, punitive damages may also be awarded.
Potential claims for damages can be almost endless in bad faith insurance cases. To help find your way through the law and facts, choose an experienced trial attorney that can help you reach a fair result.