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What is Bad Faith Insurance?

November 17, 2020

Merriam Webster defines bad faith as a lack of honesty when dealing with other people. In the context of insurance, it’s not much different. Bad faith attorneys protect you from insurance companies lying to you about your claims.

It’s easy to deal with people who lie to us in our personal lives; we can simply stop talking to them. But holding insurance companies accountable is a little more complicated. These companies have ample financial resources, negotiating power, and they are experts at voiding liability claims.

This article discusses what bad faith insurance is, the different types of bad faith insurance claims, and the challenges one can find when trying to file. It also discusses how to find the right bad faith insurance attorneys if you suspect you’re being victimized.

If you’re convinced insurance companies aren’t holding up their end of the bargain, contact us to schedule a free legal consultation to discuss your claim.

Understanding Bad Faith Insurance

Insurance companies have duties to uphold for their members. People pay their premiums and expect the insurance company to provide coverage, maintain their policy terms, and pay the claims covered on their policy. Bad faith insurance results from an insurance company that neglects its responsibility to its members because they’re more concerned about protecting their profits.

Bad faith claims don’t pertain to a specific type of insurance. All kinds of insurance companies are capable of deception. Companies can deliberately misinterpret policy language and records, avoid paying claims for unjustified lengths or make unnecessary demands for proof of loss. They can also conduct a negligent investigation of the claim or use abusive tactics to force claim withdrawal.

However, merely having a disagreement with an insurance company over a perceived slight won’t stand in a courtroom. You have to clearly show insurance companies don’t have sufficient enough evidence to refuse your claim. Because of this, having a bad faith insurance lawyer in Denver on your side can be the difference between getting the compensation you deserve and walking away empty-handed.

The Most Common Examples of Bad Faith Insurance:

  • The insurance company didn’t conduct a thorough investigation of your claim.
  • The insurance company intentionally misinterprets or manipulates the data to disprove or reduce your claim.
  • The insurance company denies your claim without providing a reason.

First-Party Vs. Third-Party Bad Faith Insurance

There are two types of bad faith insurance claims: first-party and third-party. First-party insurance claims are those which policyholders bring against their insurance company for not covering their damages. In these cases, the plaintiff believes their insurance company knowingly withheld payment on a claim when they should have covered them for an incident.

Third-party claims involve the policyholder, insurance company, and a third-party the insurance company refuses to accept liability for. The policyholder can sue the insurance company for not covering the third party’s damages.

Third-party cases typically involve flawed investigations on behalf of the insurance companies. The insurance company knowingly engages in deceptive actions throughout their investigation, and because of this deception, the policyholder is held liable.

Common-Law Bad Faith Insurance

There are two types of bad faith insurance laws: common-law and statutory claims. Common law refers to case law, and statutory law relates to claims that use statutes and regulations as their legal ground.

A United Policyholders Advocation and Action Program survey demonstrates how common law bad faith insurance laws vary from state to state. Some states describe bad faith as any claim denial that is “unreasonable or without proper cause.” Other states only assign liability to cases in which a denied claim is not “fairly debatable.” Furthermore, some states view bad faith insurance law as a breach of contract, while others view it as a tort case.

Though common law for bad faith insurance is still evolving, its roots lie in Comunale V. Traders General. Today, the prevailing common-law tort theory is that “the insurer owes its policyholder good faith and fair dealing due to the special relationship between the two parties.”

Generally, common-law bad faith insurance lawsuits must prove the following two points:

  • Valid Claim– The lawsuit must establish you had a valid insurance claim under your policy terms. You also have to prove your insurance provider denied your claim. Keep in mind that some states require you to send a final demand to your insurance provider before filing a suit.
  • Unreasonable Withholding– States’ definition of “unreasonable withholding” varies. For example, Wisconsin only issues liability in claims that insurance providers intentionally deny claims. In states such as this, negligence does not constitute bad faith.

Colorado Common-Law Bad Faith Insurance

In the 2018 court case, Shultz V. Geico Casualty Company established some clear standards for both common-law and statutory Colorado bad faith insurance law. For common-law bad faith insurance, the Colorado supreme court decided that insurance companies cannot present evidence to the court after the incident. In other words, insurance companies can only use the information they considered at the time of the decision to delay or deny a claim.

It is important to note that Colorado’s common-law bad faith insurance does not issue liability based on the insurance provider’s negligence. According to Travelers Ins. Co. v. Savio, 706 P.2d 1258, 1274 (Colo. 1985), claims must “establish that the insurer acted unreasonably and with knowledge of or reckless disregard for the fact that no reasonable basis existed for denying the claim.”

Statutory Bad Faith Insurance Claims

Statutory bad faith cases use state legislature laws as precedents. States create statutes to protect policyholders from dishonest and fraudulent actions. Unlike common-law claims, regulations set clear distinctions for what insurance companies can and cannot do regarding bad faith.

Common examples of statutory precedents courts find insurance providers liable for:

  • Insurance providers must give their policyholders a reasonable explanation for denying their claim or providing a compromise settlement.
  • Insurance providers’ negligence in regards to issuing a prompt, equitable settlement for claims when liability is clear.
  • Sub-standard investigations resulting in claim refusal.
  • Insurance providers’ failure to implement adequate investigation standards

Colorado Statutory Bad Faith Insurance.

Colorado has several statutes that are particularly favorable to policyholders. An example of one of these statutes is Colorado’s limiting insurance providers to the information they had at the time of their delay or refusal of a claim. This statute means insurance companies cannot hire expert litigators to cover up their mistakes or deception.

The difference between bad faith common-law and statutory law in Colorado is that common-law claims require proof the insurer knew about their misconduct and deliberately committed it anyway. The only relevant points in statutory law are whether insurers deny benefits without a reasonable explanation.

Whether it be common-law or statutory law, bad faith insurance law isn’t straightforward. That’s why hiring a bad faith insurance attorney who can uncover the pertinent details in your case puts you in the best position to win your claim.

Document Your Correspondence With Your Insurance Company

You know how frustrating interacting with insurance companies can be. Whether it’s keeping you on hold for hours, upping your rates behind your back, or committing acts of bad faith, you need to hold them accountable. Insurance companies train their employees on avoiding liability, so you might be unsure of whether you have a case or not.

If you’re unsure whether your insurance company is taking advantage of you, write down all your correspondence and requests. Demand you get all of their stances in writing as well. Many insurance adjusters see what they can get away with so long as they don’t have to write anything down. Their positions become more apparent when you force them to write it down.

Failure to get insurance adjusters’ position in writing can have adverse outcomes down the road if you decide to sue. Without written proof, insurance companies can freely change their stances, and it will be challenging to show how they acted knowingly in bad faith regarding your claim.

Bad Faith Lawyers Who Fight for Integrity

Paul Wilkinson Law group has a team who cares about upholding the sanctity of the law. We hold dishonest insurance companies accountable for their promises and get people the compensation they deserve. You don’t deserve to be taken advantage of, and we can ensure you keep insurance companies honest.

Because of the unpredictable nature of bad faith insurance law, we operate on contingency fees, which means you only pay us if you win. Contact us today to schedule a free consultation to start your case in motion.

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