Insurance Bad Faith and How to Deal With It

When you have health, life, disability, or long-term care insurance, or any other type of insurance policy, you expect your coverage to provide peace of mind. You pay premiums trusting that your insurance company will pay out according to the policy if you experience a covered event. However, if you have ever were involved with an insurance claim, you know that is not always the case.

Insurance companies deny claims for every reason they can attempt to justify. Sometimes the policy language can be so complicated and confusing that it can lead you to believe you have coverage that you do not actually have.

Many insurance company denials are the result of bad faith actions. Understanding whether your case involves what is known formally as a breach of the implied covenant of good faith and fair dealing, less formally known as insurance “bad faith” is vital; if your denial involves bad faith, you may have more options available for seeking compensation for your damages against your insurance company.

What Constitutes Insurance Bad Faith?

Bad faith occurs when an insurance company unreasonably or without probable cause delays payment of your policy benefits or denies your claim for policy benefits. Therefore, not every denial rises to the level of bad faith. Some examples of insurance bad faith conduct are:

• Denying a valid claim, even though the policy supports the claim and appropriate appeals and documents have been submitted;
• Offering a low settlement for a covered claim that does not reasonably address the benefits and/or damages associated with the claim;
• Failing to process a claim according to the reasonable claims handling standards in the insurance industry or as found in state statutes;
• Refusing to reasonably investigate a denial or other claims issue without providing an adequate reason for the refusal to honor its obligations under the policy.

First-Party vs. Third-Party Insurance Coverage and Bad Faith Claims

There are two main categories of insurance: first-party and third-party policy coverage.
First-party insurance provides compensation directly to the insured individual or business. For example, disability insurance is first-party coverage because it directly compensates the insured for a loss incurred under the policy. First-party bad faith occurs when the insurance company in first-party coverage situations acts in bad faith regarding your claim. For example, your disability insurer denies your claim for disability insurance benefits unreasonably or without probable cause.

Third-party insurance is a form of liability insurance that covers you when someone makes a claim against you for damages. A common example of this is auto insurance, which will pay another driver who is injured in an accident that you have caused. Another common type of third-party insurance is for property damage. Third-party bad faith occurs when the insurance company in third-party coverage situations acts in bad faith regarding your claim.

What You Have to Prove in a Bad Faith Insurance Case

The laws governing bad faith insurance situations vary by state, and California has an especially complex statutory and regulatory legal framework. To understand whether you have a good bad faith case and how to prove it, it is critical that you speak to attorneys who are very experienced in fighting insurance companies.

Typically, the initial burden of proof falls on the person filing the claim. You must demonstrate two things to succeed in a bad faith lawsuit: 1) Benefits due under the policy were withheld and 2) The reason for withholding benefits was unreasonable or without proper cause.

What Kind of Damages You Can Seek in a Bad Faith Insurance Case

It is important to understand whether you are dealing with a bad faith claim situation or not, as it will determine the types of damages that may be available to you. With a breach of insurance contract claim, you can seek the benefits due under policy. If you have a potential bad faith insurance claim, you may also be able to seek what are known as extra-contractual damages. These damages differ from state-to-state, and include:

• Liability for judgments in excess of the policy limits: If your own insurance company acts in bad faith, it may be liable for amounts exceeding the policy limits.
• Emotional distress: This is mental distress caused by the insurer’s bad faith actions.
• Economic Loss: This involves financial losses incurred because of the insurer’s bad faith actions. For example, your disability or health insurer unreasonably denies a valid claim and his leads you to pay hefty medical bills or causes you to lose your home. You may be able to seek compensation for this type economic loss.
• Statutory Penalties: These are penalties enforced by statute when an insurer acts in bad faith.
• Interest: This is interest that accrues on unpaid policy benefits. In California, you can get 10% interest on past-due disability benefits.
• Attorneys’ Fees: If you sue your insurer for bad faith and win, you may be able to recoup your legal fees. Attorney’s fees can become expensive, especially in complex insurance cases. California has a complicated and unique method of calculating attorneys’ fees.
• Punitive Damages: These are damages awarded to punish the insurer for its bad faith behavior. In California, you can prove the insurer engage in bad faith actions and they were done with fraud, oppression or malice.

Work With an Experienced California Insurance Bad Faith Attorney

Insurance law and insurance cases are complex, and you can feel like you are caught up in a machine with very little control over what happens with your claim. You do not have to face this type of issue alone and feeling like you have no way to fight back.

The insurance bad faith attorneys at McKennon Law Group PC are well-versed in fighting insurance companies and standing up for the rights of our clients. We can review your policy and claims situation and help you understand if you have a bad faith claim. Our team of insurance bad faith lawyers also works with you throughout the process, standing up for you in court to help support a positive outcome.

Call McKennon Law Group PC at 949-504-5381 to find out more about how we can help.