What Is Bad Faith by an Insurance Company?
When you purchase an insurance policy, you are entering into a contractual agreement with the insurer. You agree to pay the premium in exchange for the insurance company’s promise to pay for valid claims. The terms of coverage are described in the insurance policy. When you file a claim with your insurer, be it health insurance, auto insurance, homeowners insurance, or other types of claim, your insurance company owes you a duty to keep its promises to you, treat you fairly, and act in good faith.
The insurance company must:
- Investigate your claim
- Pay fair amounts for your valid claims within a reasonable time period
- Fulfill the duties described in the policy language
- Abide by state and federal laws
If the insurance company fails to fulfill its duties, it may be acting in bad faith.
Bad Faith Is an Element of a Breach of Contract
Insurance policies are legally binding contracts. Virtually any type of contractual agreement could become subject to a breach of contract. Whenever one or more parties to the contract do not perform as agreed, that is a breach of contract. A breach of contract is subject to legal remedies by filing a civil suit in Nevada court.
Virtually all civil suits citing a breach of contract include bad faith among its claims against the offending party or parties. When an insurer is the offending party, a bad faith insurance lawsuit might be your only resource for obtaining compensation.
How Do Insurance Companies Act in Bad Faith?
Insurance companies act in bad faith when they violate the duty of good faith they owe to their policyholders. It is important to know how insurance companies act in bad faith so that you can protect your rights as a consumer. When an insurer acts in bad faith, and you suffer damages, you can file a bad faith insurance claim and recover compensation for your losses.
Common Ways in Which Insurers Engage in Bad Faith
Insurance companies employ various tactics to avoid or delay paying claims. The most common ways that insurers engage in bad faith include:
- Denying legitimate claims without a valid reason.
If you file a legitimate insurance claim for a covered peril, and the insurer denies your claim without a reasonable basis for the denial, you can file a lawsuit against the insurance company. You may be able to recover compensation even if you do not personally have a contract with them.
- Delays in approving valid claims and issuing payments.
You can sue an insurance company for bad faith practices when it unreasonably delays processing a claim or making a payment. In Nevada, an insurer has up to 30 days to investigate and either pay or deny an insurance claim. Any significant delays beyond 30 days indicate a breach of contract and an act of bad faith.
- Making lowball offers to claimants.
It is common for insurance companies to minimize claimants’ losses and/or offer payment amounts that are well below the value of claims. If your insurance company fails to settle your claim for substantially less than your claim is worth, you can file a lawsuit against the insurer.
- Misrepresenting relevant facts or provisions of the insurance policy.
If your insurer misrepresented relevant facts about your coverages or the language contained in your insurance policy, the insurance company can be held liable for damages. Your lawyer can help you file a claim to recover compensation for your losses.
What Are Examples of Insurance Company Bad Faith Settlement Amounts?
Examples of bad faith cases are well-documented and likely only represent a portion of the bad faith that actually occurs. Many victims of bad faith by insurers fail to recognize violations of their legal rights and do not hold insurers accountable for bad faith.
The following are some examples of bad faith settlement amounts secured by attorneys for policyholders who had to take legal action to prevail over unethical insurers.
Bad Faith Settlement Amount Involving the Wrongful Denial of Healthcare Coverage
In 2022, a $200 million verdict was reached against the largest health insurance company in the United States after the insurer refused to authorize payment for a cancer treatment that could have saved a policyholder’s life. The preauthorization request was denied without consideration of the insurance contract and without investigation.
As a result of the insurance company’s denial, the policyholder was forced to undergo alternative treatment that caused severe injuries to his esophagus. The victim endured extreme suffering until his death in 2017.
Through discovery, attorneys for the plaintiff uncovered a process where the insurance company automatically denied claims for the cancer treatment without considering their duty of good faith and fair dealing. The company denied claims while allegedly knowing that people would suffer and even die.
The $200 million verdicts included $40,000 in compensatory damages and $160 million in punitive damages.
Bad Faith Settlement Amount Involving Workers’ Compensation Insurance
A 2018 workers’ compensation case accused an insurer and an employer of reneging on their respective obligations to an injured worker. The employee suffered a workplace injury 22 years earlier and initially received workers’ compensation coverage for medical costs.
The worker’s initial claim was denied. A decade later, a court ruled that her injury caused chronic pain and that workers’ compensation benefits should cover the costs. But the insurer continued to deny the benefits despite the court ruling.
The worker filed a second lawsuit against the employer and workers’ compensation insurer. The lawsuit cited bad faith as a cause of action. An email obtained through the discovery process showed that a representative for the insurer proclaimed a desire to “bury” the plaintiff.
The worker prevailed. In 2018, she obtained a $15 million judgment against her employer and a $30 million judgment against the insurer.
Consequential Damages Could Occur Due to Bad Faith
The insurance company’s acts of bad faith could lead to consequential damages for the policyholder. The insurance company’s denial, delay, or underpayment of a claim that is valid can cause significant hardship for claimants. When insurers engage in bad faith, policyholders are more likely to experience financial problems and other challenges that could make them even more vulnerable to bad-faith tactics.
When someone is seriously ill, recovering from injuries, or facing significant losses caused by an insured mishap, medical bills, and other costs can pile up fast. The pressure of trying to stay above water financially could push the claimant to accept a lowball settlement offer from the insurance company.
Accepting a lowball settlement offer will likely relieve the insurer of any additional financial payouts, even if the claimant has ongoing costs and additional damages that the insurer should have covered.
How Insurers Could Undervalue Your Claim
Insurers are businesses that exist to generate a profit. The profit normally comes through the actuarial process that uses statistics and probability to determine the level of risk. The actuarial process enables insurers to more accurately determine premium amounts that enable them to pay anticipated claims while still turning a profit.
But some insurers commonly employ tactics that undervalue those claims. When a claim is undervalued, the insurer pays less than it should. It also helps the insurer to avoid potential claims of bad faith.
The ways in which insurers might undervalue your valid claims could include declaring that you:
- Caused an auto accident.
- Partially caused the loss through negligence.
- Did not suffer serious injury.
- Lied about the cause of an injury.
- Did not obtain medical treatment soon enough.
Insurers employ insurance adjusters who investigate insurance claims to determine their validity. An insurance adjuster is not your friend and will not be compassionate about fulfilling any claims that you might file. It is best to assume the insurance adjuster is looking for any way to reduce or eliminate the insurer’s potential financial liability.
For example, if you were injured in a car accident, the adjuster likely will call to ask how you are feeling. If you respond by saying that you feel relatively good, the insurer could reduce a potential settlement amount and say that your injuries did not warrant more money.
What Damages Can Be Recovered in a Bad Faith Case?
Various types of damages may be able to be recovered in your bad faith case. When your bad faith insurance lawyer evaluates your claim to determine a fair bad faith claim settlement amount, he or she will separate your losses into three categories: contract damages, damages, and punitive damages.
In a bad faith insurance case, your contract damages refer to the amount of the original claim that should have been paid out, plus mandatory interest. For example, if you filed a medical insurance claim for $100,000, and the insurance company denied your claim, your contract damages would be $100,000 plus the applicable interest.
Your extracontractual damages are losses you sustained because of the insurance company’s acts of bad faith. They may be economic, non-economic, or both.
Extracontractual damages could include:
- Attorney’s fees and court costs to litigate your bad faith insurance claim
- Emotional distress like suffering, anguish, worry, anxiety, etc. caused by the insurance company’s refusal to pay
- Interest and finance charges for loans you had to take to pay for medical treatment or losses the insurance company should have paid
- Additional medical bills caused by treatment that was delayed by the insurance company’s refusal to authorize medical procedures, tests, or medications
In Nevada, there are no maximum payouts for extra contractual damages. An insurer that engages in bad faith could be liable for the full amount of your losses. These damages are in addition to other liabilities and claims that could arise from bad faith.
Punitive Damages for Bad Faith Insurers
If the insurance company’s bad faith acts or omissions were especially egregious, the Court may award punitive damages to you as well. Unlike compensatory damages that are meant to make you whole, punitive damages are intended to punish the insurance company and prevent similar bad faith acts in the future.
There are no limits on awards for punitive damages in Nevada bad faith insurance cases. In many cases, punitive damages are a significant portion of bad faith claim settlement amounts.
One of the elements of bad faith by an insurer is that the resulting damage was foreseeable. Winning a bad faith lawsuit against an insurer essentially means that the insurer deliberately refused to pay a valid claim in a timely manner.
When the defendant acts in such a brazenly overt manner, it is much easier to demonstrate intent. And that intent could secure punitive damages.
How to Prove Bad Faith in an Insurance Claim
To prevail in an insurance bad faith claim, you must prove that:
- The insurer failed in its duty to provide benefits that were included in your insurance policy
- The insurer’s actions or omissions were unreasonable
- You suffered damages as a result of the insurance company’s bad faith acts
Ultimately, you would need to show the chain of events that clearly illustrates the bad faith and its effect. And you must show that the damages were foreseeable at the time that the bad faith denial of your insurance claim occurred.
How to Sue the Insurance Company for Bad Faith
An attorney who is experienced in handling insurance-related issues is your best resource to learn how to file a bad faith insurance claim. When it comes to insurance bad faith disputes, the policyholder is at a disadvantage. Insurers are experienced at handling claims on a daily basis, and they have adjusters and staff attorneys on their side.
You can report an insurer to your state’s insurance commission and cite bad faith among your reasons for filing a complaint. That could cause the insurer to correct its actions and pay you as agreed for your damages.
If the insurance commission does not get the insurer to cease its bad faith practices, you could pursue a lawsuit in a civil court. Normally, an insurer will pay up before arguing a case in court that it knows it would lose, and your prior complaint to the insurance commission could help to support your claims.
When you have an expert Reno bad faith insurance attorney on your side, it will significantly improve your chances of success and maximize your bad faith settlement amount when suing the insurance company.