Elements of a Bad Faith Insurance Claim

Did you just have a disaster that needed to be cleaned up?  Does it qualify for coverage under your insurance policy?  If so, you need to know your rights and what could possibly happen with your claim.  Insurance companies have more experience, negotiating strength, and financial resources than you the policyholder. Most state courts realize this and feel that the insurer has an obligation of offering good faith and fair dealing to every insurance policyholder.  If your insurance company fails to act reasonably in processing, investigating or paying your claim, you may have the right to file a lawsuit. State law defines and outlines what bad faith in the insurance world looks like. The insurance claim might be governed by common law established by courts, or a state statute. To better understand what constitutes bad faith, let’s dig deeper into what is a bad faith claim.

Elements of Common Law Bad Faith

The common law elements of bad faith are not the same from state to state. 

  • Some states define bad faith as conduct that is “unreasonable or without proper cause.” 
  • Other states take a more strict view. Finding liability only where a denied claim is not “fairly debatable” and the insurance company knows this is the situation. 
  • Yet still, some states view this type of claim as a breach of contract.  
  • In others, it’s viewed as a tort, which is a wrongful act or an infringement of a right (other than under contract) leading to civil legal liability.

Proving a common law claim of bad faith generally requires the policyholder to prove two elements:

  1. Benefits due under the policy were withheld. So first, you must establish that you had a valid claim under the terms of your policy (The claim was covered as outlined in your policy). You also need to document that your claim was denied by the insurer., so it is in your best interest to always get your correspondence between you and your insurance adjuster and your insurance carrier in writing (text, email, snail mail, etc.) Some states require you to make a final written demand for payment of the claim or reconsideration of the payout of the claim, before filing a lawsuit.
  2. The reason for withholding benefits was unreasonable. Next, whether the insurance company acted reasonably is evaluated based on the context of the decision and the facts that existed at the time of the decision to deny or pay a small portion of the total claim amount. The courts have identified certain actions as bad conduct. In the article, 24 Red Flags that Indicate a Bad Faith Claim, we identify some of the typical signs that your insurer is operating in bad faith.

In short, the presence of any one of the following factors is not conclusive evidence of bad faith, but can help establish your case:

  • Misrepresenting relevant facts or insurance policy provisions
  • Failing to acknowledge a claim and to act promptly after receiving a notification of the claim
  • Failing to adopt and implement reasonable standards for the investigation and processing of claims
  • Failing to either approve or deny claims within a reasonable time after the insured has submitted proof of loss
  • Failing to provide a reasonable explanation or reasons for denying the claim

Elements of a Statutory Law Bad Faith Claim

Your lawsuit may identify a common law and a statutory bad faith claim. A statutory claim is based laws made by your state’s legislature. Many states have statutes crafted to protect policyholders from the unfair or deceptive practices of an insurance company. These statutes will outline the type of prohibited actions and the remedies available to you, the policyholder.

Experiencing Bad Faith? You have Rights!!!!

There are a variety of insurance company tactics that could constitute bad faith. And the rules on bad faith litigation vary from state to state. If you believe your insurance company acted in bad faith, you can file a claim with ]your state’s Department of Insurance (Fraud Division) to get their attention, but if there is still no resolve or reasonable outcome, you might consider hiring an experienced insurance attorney.  They can help protect your rights. Most of the bad faith insurance attorneys will  consult with you to see if you have a bad faith insurance case that they can pursue for you.  You have rights.  Some insurance companies don’t want you to know your rights and just accept what they decide to give you.  In some cases, they will threaten to drop your insurance if you file a claim or pursue this claim further.  You do have people on your side.  

Bad Faith Insurance Claims
Bad Faith Insurance Claims

Expert Restoration of Utah has worked with many homeowners and business owners over the years.  We have seen how amazing some insurance companies are to work with and how they advocated for the insured.  Yet, sadly we have seen how some of the other insurers look to delay, confuse, minimize, and distract the insured from receiving the level of service and coverage that they are entitled to receive.  

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