When you think of an insurance company, what words come to mind? Untrustworthy? Greed? Betrayal? For good reason, most people distrust insurance companies. Indeed, many consumers expect even their own insurer to refuse to honor their insurance policies even after a clear cut, insurable, and catastrophic event, such as a wildfire. At best, consumers expect their insurance company to not pay without a long, drawn out, and difficult fight. Insurance companies who betray their own customers by refusing to pay a valid claim or who unreasonably delay payment may be sued for insurance bad faith.
What is insurance bad faith?
In California, insurance bad faith is legally a type of “breach of the implied covenant of good faith and fair dealing.” The implied covenant of good faith and fair dealing requires that each party to a contract not interfere with the right of the other to receive the benefits of the contract, to act honestly, and to not mislead the other party. (California Civil Jury Instruction No. 325.) More simply, one party to the contract cannot undermine the contract and must act in good faith. The implied covenant of good faith and fair dealing is an unspoken promise in all contracts, including contracts for fire insurance, homeowners insurance, and auto insurance.
In the context of insurance, the breach of the covenant of good faith and fair dealing can arise when, without proper cause, insurance companies refuse to compensate their insured for a loss covered by the policy. It may also arise when insurance companies unreasonably delay payment or fail to investigate the propriety of the underlying claim.
What are the consequences of insurance bad faith?
There are special consequences for insurance companies who act in bad faith towards their insureds. These consequences are intended to discourage powerful insurance companies with seemingly unlimited financial resources from taking advantage of their comparatively powerless insureds, many of whom have faced a recent catastrophic event, such as the loss of a home.
Insurance companies that breach the implied covenant of good faith and fair dealing may be sued for more than simple breach of contract, that is the actual amount of the policy wrongfully withheld from the insured. Insurance companies may also be held liable for human damages called “general damages” such as emotional distress, anger, inconvenience, physical pain, and suffering that naturally arise when insurance companies harm their own insureds. Finally, insurance companies can be held liable for attorney fees as well as punitive damages.
What are the defenses to insurance bad faith?
The first and foremost defense to a claim of bad faith insurance is that the insurance policy in question never covered the particular insurance claim, called a “loss.” This can arise when the consumer purchased insurance that never covered the particular event that resulted in the loss, purchased too little insurance, or misunderstood the terms of their own insurance policy.
Next, insurance companies will assert the “genuine dispute” defense, meaning that the insurance company, in good faith and on reasonable, fact-based grounds, disputes the amount that it must pay. In other words, that reasonable minds differ. The “genuine dispute” defense is often abused by insurance companies for the simple reason that insurance companies will deliberately seek out disinformation to dispute the claim or low-ball the claim.
What to do when faced with bad faith insurance tactics?
At the outset of an insurance claim, it is critical that the policy holder carefully manage and monitor the insurance claim, keep organized records, and keep close track of written and verbal communications with the insurance companies. This standard can be very difficult to achieve in the wake of an event that triggered the need for insurance in the first place. For instance, in the aftermath of a wildfire, an insured person may have lost their home, all their personal possessions, and temporarily relocated to a different county. Nevertheless, it is important that insureds deal with their insurance company in a timely and responsive way to help prevent and detect insurance bad faith.
Lastly, insured persons should be conscious of the relatively short twelve month statute of limitations that applies to bad faith insurance claims in the context of fire. This deadline to file suit is triggered by the “inception of the loss” or the fire itself. For this reason, when faced with perceived bad faith insurance tactics, one should consider contacting an attorney sooner rather than later.
Are you a recent victim of wildfire? Are you now having to battle your own insurance company? Contact the Law Office of Brian Mathias today.