California law generally states that insurance companies have a duty to act in good faith with their insured clients. They must be fair when dealing with a claim. Every insurance policy contains an implicit obligation to fair dealing and good faith. Good faith means that neither the insured nor the insurance company will do anything to hinder the rights of other parties to receive the benefits of the agreement. Good faith demonstrates an obligation by the insurance company to look after the interests of the insured and not just its own.
Legally, a breach of the implied obligation to good faith and fair dealing requires more than simply denying coverage. A breach of an implied obligation in a court of law requires that proof be presented that the insurance company deprived the insured of the benefits they purchased. It must go beyond the mere failure to exercise reasonable diligence. Even if the insurance company did not intend to withhold benefits, it can still be held liable.
Unreasonably negating benefits (i.e. without any reasonable explanation for the denial) could expose the insurer to all aspects of tort law including punitive damages. An employee of an insurance company may believe that he or she made the right decision, even though it is deceptive or evasive. This would be against the policy on good faith. The company also has a more strict duty. Omissions can be considered bad faith. Honesty may not suffice to demonstrate good faith. There are many types of bad faith, too numerous to list all. However, some have been mentioned in legal decisions. These include abusing power to name terms and interfering or failing to cooperate.
These examples will make it easier to understand the legal consequences of insurance companies acting in bad faith. In an auto insurance case, an insurance company that provides uninsured motorist coverage for their insured may cause an accident with an uninsured driver. The insured party is entitled to fair and prompt compensation according to the policy. The insurance company could be held responsible for any withholding of benefits due to the fact that it doesn’t believe that the insured has been injured. Insurers may not pay a claim promptly, which could be considered bad faith. This can sometimes happen when an insurer makes its policyholder go to arbitration in order to lower the claim’s value. After an arbitration hearing determines the amount of the award, payment will not be made.
Insurance companies will often deny claims for property damage, life insurance benefits and other damages if they interpret the policy in an irrational way. This is called insurance bad faith. Sometimes, a condition or prerequisite for coverage is not clear in the policy. It is the responsibility of the insurance company to explain and interpret the policy language. Bad faith can also apply if the insurance company refuses or interprets the policy language in a different way. Any ambiguity in the policy can be used against the insurance company – the contract writer. The courts will generally interpret disagreements about policy exclusions in favor of policy holders. It is therefore important to make sure that exclusions are clear, conspicuous, and simple.
While the law favors the insured in cases of bad faith, it is important to understand that insurance companies are not required by law to pay all claims. Insurance companies have a responsibility not only to treat the insured fairly but also to their stockholders and other policy holders. It should not spend its reserves by making unjustified claims.
If bad faith can be proven, the amount of damages the insured is entitled to must include all damage, even if it was not possible to have anticipated. It is the responsibility of the policy holder, to prove actual damages. The insured does not have to prove the exact amount that will compensate for the damage. These damages could include compensation for mental suffering, anxiety and humiliation. An insurer could be awarded legal fees if it becomes necessary to hire a lawyer in order to receive the insurance benefits due. Punitive damages can also be awarded in addition to the amount of attorney fees.
Bad faith cases can lead to a host of potential claims for damages. An experienced trial lawyer can help you navigate the law and facts to help you arrive at a fair conclusion.
