Insurance companies are out to make money. They are businesses, after all. And they make less money the more claims they pay out on. It is not surprising, therefore, that insurance companies seek to lower their costs by denying claims when they can and negotiating for lower-end settlements when they do pay.
But there are laws that protect consumers when it comes to insurance claims, especially in California, which is considered a leader in consumer insurance protection. Insurance policies are contracts between the insurer and the policyholder. The policy sets out the conditions under which an insurance company will pay out on a claim. In some cases, failing to treat a policyholder fairly can result in a bad faith lawsuit.
What is bad faith in insurance law?
In some cases, insurers can legitimately deny claims because what happened is excluded in the policy. In other cases the insurer may need more information before it pays out on a claim, for example it may require evidence that you meet the requirements to obtain disability insurance.
Occasionally, however, an insurance company does not have a valid reason for delaying or denying a claim. When an insurer simply refuses to pay, it is acting in bad faith.
Under California law, all parties to a contract must try to meet the terms of the contract in good faith. This is true regardless of the terms of the contract. A contract is worthless if one side has no intention of upholding their end of the bargain.
The fine print in insurance policies is written by insurance company lawyers with the intended purpose of limiting the amount and circumstances under which they are required to pay on an insurance claim. But if your claim meets the terms under your policy, then your insurance must cover the costs. Refusing to pay on a claim without a reasonable basis is bad faith.
Types of bad faith insurance
If your insurer has performed any of the following actions, they may be liable for paying out on a claim of bad faith:
- Deliberately misrepresented facts
- Deliberately misinterpreted policy language
- Failed to investigate a claim properly
- Repeatedly and unreasonably demanded proof of loss
- Used abusive or coercive tactics to try to settle a claim
- Did not investigate a claim
- Failed to disclose policy limits or explain exclusions to the consumer.
This list is not exhaustive, but it provides an example of the types of actions insurers have taken in the past and subsequently lost a lawsuit alleging bad faith. Importantly, claimants who are successful in a claim of bad faith may be able to recover more money than they were owed under the cost of the original claim.
This blog is not legal advice. Whether you have a claim of bad faith against your insurer depends on your individual circumstances. If you are unsure if your insurance acted in bad faith, contact an attorney familiar with California bad faith insurance litigation to discuss your legal options.