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What Is Bad Faith Insurance?

Last modified: Jul 25, 2023

When we buy insurance, we hope that we will ease our lives when bad circumstances come our way. As we know, being injured or experiencing property damage is difficult, but when the insurance company helps us by settling the pre-arranged claims we end up in good faith. However, not every one of us gets lucky. Many have experienced what we refer to as bad faith insurance and for those who are lucky enough not to know what that is at all, here we will explain how to stay away from bad faith insurance companies.

In simple words, bad faith is defined as dishonest or unfair practices. When the insurer attempts to revoke its client obligations in many ways, such as avoiding to pay a policyholder`s legitimate claim, refusing to investigate and process the claim within a reasonable period, or misrepresenting the contract`s language of the policy, it's time to consult a lawyer or alertly confront the insurance company. Don’t let the insurance bad faith affect you.

It is crucial to recognize it on time, by watching every foggy situation like undue delay in handling the claim, refusing to give you a reasonable settlement offer, or misinterpreting your insurance policy. If you notice that something is not going smoothly, try confronting your insurance company or talking to a lawyer.

What Is Bad Faith Insurance?

Whether you are a home, health, life or auto insurance policyholder, you might be a victim of bad faith insurance. Bad faith insurance by definition is an attempt to back out of a deal, policy rules, or obligations that the insurer provided to the policyholder. So you must know how to sue an insurance company for bad faith.

Many companies refuse to pay policyholders’ claims within a reasonable period. The easiest way to avoid the payment is to misrepresent particular insurance contract language and misrepresent the problem to their customer. One should start being alert and think twice about purchasing a policy if the company fails to disclose the policy limitations or exclusions, or if it is simply making unreasonable demands like proving a covered loss.

Still, there are many other ways that companies can act in bad faith, and that’s the main reason why a policy buyer should search the internet for bad faith insurance companies list and check if their chosen company is on that list. Also, the policy buyer must know their rights to be able to conclude that they are victims since bad faith is legally considered a breach of contract. 

The only person who can take the insurers to court is the insured. The case can only be made between these two parties who have a contractual agreement. If however, the company is denying the claim, the buyer should always look for evidence to prove the insurance basis for denial. Now, some insurers will try to avoid explaining why they refuse or want to partly cover the claim. But this is against the law in many countries, and if cases like these come to court, the jury could find them guilty of negligent activities.

Understanding Bad Faith Insurance

Everyone deserves fair treatment by their insurance company, and one must be capable of understanding bad faith insurance. We will go through some common bad faith tactics and examples so it will be easier for you to recognize it when it's happening to you.

Unreasonable Delays

Most insurance companies know their rights better than their policyholders, which is how one can accept bad faith insurance settlements. Let's say that you filed a claim for damage to your household from a broken pipe, and there is not a prompt investigation from the insurers.  If the time to investigate a claim is unreasonable, maybe it is a bad faith tactic where they are waiting for the policyholder to just give up pursuing the claim. 

Most states set deadlines ranging from 15 to 60 days for the company to accept or deny a claim, and this has been used if the policyholder is not aware. So if there isn't any ongoing investigation for more than two months after you filed a claim, maybe it's time to check and prevent being a victim of bad faith.

Failure to Conduct a Complete Investigation

If your car is insured by a certain company, and it has been damaged while parked on the streets, you know that it is your obligation to submit a claim. The claims adjuster's obligation is to conduct a complete investigation on your claim. 

Nowadays, many insurance companies speak with the policyholder over the phone and try to deny their claims. If this happens to you and the adjuster did not consider the repair shop estimates, or if your car damage is not inspected on time, you will have a good case for suing the insurance company for bad faith. Every insurance policy contains an implied duty of fair dealing and good faith. This requires the company to conduct prompt and thorough investigations for the submitted claim, whether it is a bodily injury or property damage.

Deceptive Practices

It is of big importance for the policyholder to know what is covered with their policy even before they buy it. Many insurers fail to disclose the existence of coverage so they don`t have to pay you at all. Hence, many insurance companies also fail to notify the policyholder that there is a certain deadline for submitting a claim and certain papers that need to be provided by the company so the claim can be completed on time.

For example, if you are owning a small business and have a policy for lost income after a covered event, you might not be aware that theft of important equipment for your job could be regarded as a claim for lost income in addition to the claim for the equipment. This information can be deliberately hidden from you, and it would be in your favor to have a bad faith insurance lawyer. 

Offering Less Money Than a Claim Is Worth

Many times, the insurance company offers to pay about half of the amount of the repair quotes that are settled, and the cause often is the higher coverage called for under the policy. Never accept this kind of agreement. The insurance companies cannot avoid paying a valid claim, and if you know that your claim is valid, never settle for half of the price. Tactics such as lowballing or offering less money than the actual worth of the claim is always an act of bad faith.

Misrepresenting the Policy Language or the Law

Insurance companies must be accurate regarding every aspect of your policy and the law as part of their responsibility of good faith and fair dealing. But there are many examples where numerous companies deliberately interpret the policy language against the claimant. You need to know how to file a bad faith insurance claim because the insurance company could be easily found guilty of insurance fraud if you have stable proof.

Refuse to Pay a Valid Claim

When we buy insurance, we’re not sure every time what we are paying for. But everyone knows that when he/she is buying auto insurance we certainly want to protect our car from a car accident. 

If our car was hit by an uninsured motorist who admitted fault and that was recorded in the police report, we have a valid claim that should be covered. If the insurer denies paying the claim, this action is qualified as bad faith for sure. Bad faith insurance claims can only get covered if the policyholder takes matters into his/her hands and handover this case to a good insurance bad faith attorney.

Threatening Statements

In our opinion, this is the “red flag” of bad faith strategies. An insurer should never threaten a policyholder or third parties who are making claims. If however, your insurance company threatens to take harsh legal action against you or will file criminal charges if you submit a claim, you should call your state insurance board and your attorney.

Understanding Common Law Bad Faith

When your insurer wrongfully denies a claim, you may need to seek legal representation, such as an attorney or insurance bad faith lawyer, to help you recover your bad faith insurance cases. 

Depending on the circumstances, your attorney may bring one of two types of bad faith claim against your insurer: a common bad faith law claim or a statutory claim. Let us help you with these two. Common law refers to the law created by case law and statutory claims arise from statutes or regulations.

The common law for bad faith is different from state to state. While some states regard it as unreasonable, others take the narrower view. For one the claim is viewed as a breach of contract and for others a tort. Insurance companies, on the other hand, use the fact that it is not fairly debatable to find a liability only where a denied claim is. Hence, they complicate matters further.

If we regard the common-law tort theory, it is a duty for an insurance company to act in good faith and be fair, because the relationship with the policyholder is special. 

To prove that your insurer is on the list of bad faith insurance companies and to raise a claim the policyholder must improve two elements: 

  • The policy's benefits were not paid out. You must prove that you have a genuine claim under the terms of your policy in this first phase. You must also prove that your claim was refused by the insurance company's bad faith tactics. Before filing a lawsuit, some states require you to make a final demand.
  • The benefits were withheld for an unreasonable cause. The objective evaluation of whether the insurance company acted fairly is based on the situation and facts as they existed at the time of the decision-making. For example, in certain countries, liability will only be shown if a claim is rejected without a reasonable basis. Negligence alone is never enough to establish bad faith.

A lawsuit might include both the common law and a statutory claim for bad faith. A statutory claim is one that is based on a law made by a states’ legislature. 

Many states have laws and statutes in order to protect policyholders from insurance companies' unfair or deceptive activities. These statutes will specify the kind of prohibited actions as well as the policyholder's options for remedies. However, how to file a bad faith claim against the insurance company and how it will be judged depends on your place of living and its laws.

A Closer Look to Insurance Bad Faith in California

Insurance bad faith may be a difficult subset of insurance law to grasp because it is complex and varies in each state. We did thorough research to bring you the most valuable information for the bad faith legislation in California. This article can help you answer some commonly asked questions when you are in a bad faith situation.

In the US, insurance bad faith is enforced in two ways — common law bad faith and statutory bad faith. In California, insurance bad faith falls under the “Fair Claims Settlement Practices Regulations”. It is a version of a model act called NAIC. 

In this statute, it is exactly detailed what does it mean for an insurance provider to conduct the claims well, and what must be done so that the policyholder can be ensured that the company would act in good faith. Actually, there is a whole section that has a detailed review of all the standards for prompt, fair and equitable settlements. If the insurer does not comply to act in good faith, it can easily end up on a bad faith insurance company's lists, be sued, and lose its reputation.

According to the statute of limitations on claims for bad faith insurance in California, there are two types of claims that can be brought in the courts. Depending on the type of claim, the policyholder will have limited time to file a claim. If it’s a tort claim, one has two years from the date that it was denied in bad faith, and if it was a breach of contract claim, they have four years.

However, there are always exceptions from the statutory deadlines for filing a claim in California as the courts are not allowing it easily due to public policy reasons. Also, insurance companies are not obligated to advise their insured about the applicable statute of limitations in their disputes. 

In certain instances, California insurance bad faith statute of limitations will allow tolling or halting cases concerning insurance bad faith disputes. Two of the most common reasons include lack of information about the due date of the contractual limitations period and misled policyholder by the insurer as to file a bad faith claim. Other instances where tolling is allowed include when the policyholder is under the age of 18 or has mental or physical incapacitation.

We advise you to inform yourself better about the statute of limitations laws and contact a bad faith insurance lawyer. Anytime that you suspect that your claim has bad faith, research it online and then get a more detailed analysis of your claim by professionals, such as attorneys or lawyers.

How to Find the Best Bad Faith Lawyer

Fighting bad faith insurance requires more than just knowing how to file a bad faith insurance lawsuit, your rights, and what is covered when purchasing your policy. 

If you however end up in bad faith, you`ll want to make sure that you have the best legal team on your side. It is too complex to do it by yourself. Having a professional bad faith lawyer, you could get help, legal advice, and guidance on how to proceed. 

The most valuable thing is that the lawyer can help you confirm if your rights have been violated and how to proceed. In California, an experienced bad faith lawyer knows the law and can significantly help you see if you have been deprived of the benefits and protection in the policy. 

So how can a bad faith lawyer help? It can help the policyholder to collect the benefits promised by the policy contract and also the compensations for losses related to the claim denial, such as lawyer fees and any additional fees that the person has incurred.

Bad faith insurance attorney is needed to help an individual who has suffered unfair denials from the insurance company, refusal to pay benefits, fraud or malice, and breach of contract. 

There are a number of ways to choose a lawyer, regardless of the type of legal matter. One of the best approaches is to get a referral from a friend, neighbor, family member, or a person whose opinions you trust. If no one knows a lawyer who takes bad faith insurance cases, you could use the websites and apps that can help you find one in your local region. This is the second-best way to find a qualified person since there are free online directories that one could use to quickly sort a list of law firms near the place they live.

In Conclusion

Whenever you need to buy a policy for your health, car, or house, you need to educate yourself and do online research. The policy itself is so complicated that many policyholders are not sure how much coverage they have and if any. The best way to know that your policy is the right one for you is to get policy advice. This helps people to get their policies from credible insurers. But why do we advise you of this? The best way of fighting bad faith insurance is to never buy it in the first place. 


Can you sue someone for bad faith?

Yes, you can sue your insurance company because they are obligated to fairly deal with their customers and act in good faith. Hence, they are breaking the law, and you can sue them by filing a lawsuit in the appropriate court. You must state what the insurance company did or did not and how its actions hurt you financially, but since the law is a complex thing, it’s always better to get an attorney.

What is an example of bad faith?

Bad faith can be everything that doesn't match your policy or if the insurer doesn't act like it’s supposed to. Some of the most frequent bad faith examples include:

What is a good faith claim?

When the insurer acts as it is supposed to act, your claim ends up in a good faith. Unlike bad faith insurance claims, a good faith claim is every claim where the terms, conditions and obligations that are agreed between the insurer and the policyholder are respected. Let’s say that you have a car accident. A good faith claim would be a prompt investigation of the claim and a fair payment that covers your expenses.

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