Insurance Bad Faith

Note: Kang Haggerty focuses on commercial insurance bad faith, not consumer insurance bad faith.

Insurance bad faith refers to unfair conduct of an insurance company in denying an insurance claim that is clearly payable by the insurance company. In addition to denial of payment, an insurance company’s unreasonable delay in payment or only partial payment could constitute bad faith.

Insurance companies engage in bad faith conduct because (1) they save money by denying claims that are payable and (2) they can get away with it. By denying claims that are properly payable, insurance companies get richer. Insurance companies know that many of the insureds (usually their clients that they promise to protect) just go away after one or two rejections of the claims. So these companies are, in fact, playing a numbers game.

(1) Your business was damaged in a fire. You file a claim with your insurance company for the loss. Rather than paying you for the loss so you can start fixing your business and get back to work, the insurance company wrongfully denies the claim or pays you only a portion of the loss even though the entire claim is clearly payable. This type of insurance claim is commonly referred to as a “first-party” claim because the claim was brought by you, the insured.

(2) Your business is sued by someone. A pedestrian who claims to have been hurt on your business property, for example, sues your business. You turn over the claim to your insurer. Your insurance company now has two different duties: a duty to defend and a duty of indemnification. Duty to defend means the insurance company must represent you in the lawsuit brought against you by the claimant. Duty of indemnification means the insurance company must pay a judgment entered against you in the lawsuit. Rather than defend you or pay for the judgment, the insurance company simply denies coverage without conducting a proper investigation or intentionally misapplying policy provisions. In that event, you could be responsible for defense costs and a judgment which could be entered against you in the lawsuit. This type of insurance claim is commonly referred to as a “third-party” claim because the claim was brought by a third-party (in this example, the pedestrian).

There is no one definition of “bad faith.” It is a concept that generally refers to insurance companies’ acting unreasonably or unfairly. The fact finder (usually the judge or jury) has to determine that the insurance company acted in bad faith by (i) it’s unreasonable or unfair conduct and (ii) its knowledge or reckless disregard of the fact its conduct was unreasonable. In addition to outright denial of claims that are properly payable or undue delay in handling claims, there are other types of conduct that could constitute bad faith, including, inadequate investigation, failure to give consideration to the interest of its insured, refusal to defend a lawsuit, refusal to settle on behalf of the insured, or insisting on an unreasonable interpretation of an insurance policy.

You can walk away from it and let the insurance company deny your claim, which is exactly what the insurance company is hoping you would do. Or, you could hire a lawyer and make the insurance company pay.

If you are successful in proving bad faith against your insurance company in court, you are likely to recover damages, including the amount of money due under your insurance policy (i.e., coverage amount) and, sometimes, even consequential damages that are not covered under the insurance policy. That means you could get more than the amount of your insurance policy if the court finds that the insurance company’s bad faith conduct caused you damage in an amount in excess of the policy amount. The court may even award you with punitive damages if the insurance company’s bad faith conduct was especially egregious, willful, wanton, or reckless. In the example of a fire destroying your business, and your insurer denying coverage in bad faith, your damages could include your lost profits.

Yes, in every state there is a time limit on bringing claims against an insurance company for bad faith. In Pennsylvania there is a two year limit on filing a lawsuit against an insurance company for bad faith. This means you need to file a lawsuit within two years from the time the insurance company committed wrongful conduct (i.e. denied your claim). If you don’t bring a lawsuit within this two year period, you may be forever barred from bringing a bad faith claim against the insurance company. Please consult an attorney for specific information as it relates to the state in question, so time does not run out on yur potential bad faith claim.

The lawyers at Kang Haggerty are committed to holding insurance companies responsible for the promises they made to their insureds. It is deplorable when insurance companies break their promises to insureds, their own clients, who have been making their insurance premiums faithfully. When you or someone else suffers a loss or injury covered by your insurance, your insurance company has the duty to immediately and effectively protect your interests. When an insurance company shirks its duty during the time of dire needs (after all, you would not have filed a claim with your insurance company unless you were in a dire situation), it is likely acting solely in its self-interest and you need the help of a lawyer.

If you believe your insurance company acted unfairly or unreasonably, please contact us.