What Is Bad Faith in Insurance? [infographic]

Under Nevada law, insurance companies have a duty to act in good faith and deal fairly with the entities and individuals they insure. Failure to do so is considered bad faith and may leave the insurer open to legal action. So what is bad faith in insurance?

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infographic_Insurance Company acts in Bad Faith

Insurance Bad Faith

Appealing a bad-faith Insurance decision is a state claim based on Nevada law. When a person is injured or property is damaged, individuals rely on insurance companies to pay benefits according to the terms of their policies. Denying a legitimate claim in order to reduce the cost of the insurance company is considered bad faith. Nevada law allows those who have suffered bad faith actions by their insurance company to retain an attorney a bad faith insurance attorney and pursue legal action.

Nevada law stipulates that bad faith arises when an insurance carrier denies the benefits outlined in a policy when there is no reasonable reason for the denial. An insurance policy is, in essence, a contract and failure to uphold it may have legal consequences. Since the contract is between the insurer and the insured, third party claims against an insurance company may not fall into the bad faith category.

Types of Bad Faith Insurance Claims

Insurance providers are obligated to pay out claims in a timely fashion and within the terms of each policy. Insurance companies that fail to disclose the limits of a policy or use coercive tactics in an attempt to settle a claim may also be acting in bad faith.

Bad faith insurance actions can take many different forms, such as:

  • The denial of benefits with no justifiable explanation
  • Failing to deny or confirm the disbursement of benefits within a reasonable period of time
  • Intentionally delaying an investigation or requiring unreasonable proof of loss to avoid paying benefits
  • Undervaluing the loss documented in a claim, paying a fraction of what they were expected to pay
  • Using unreasonable translations of policy language
  • Not looking out for the best interest of policyholders

Bad faith insurance claims are not limited to one type of insurance policy. Insurance bad faith may apply to auto insurance, casualty insurance, individual health insurance, homeowners insurance, commercial business insurance and other insurance policies. Though there are many law-abiding and reputable insurance companies, there are quite a few who engage in unlawful practices to increase profits. Health insurance companies, for example, have been known to suggest lower-cost medical treatments or to overrule the conclusions made by doctors in order to minimize payouts.

How to Sue an Insurance Company for Bad Faith

It is not uncommon for insurance carriers to deny claims when they can. Underpayment of claims is another frequent occurrence. To prove insurance bad faith in Nevada, the insured must show that an insurance company failed to honor their contract without appropriate cause, which requires proving that an insurer and the insured entered into a contract and that the insurer had a covenant of good faith. Once the existence of this contract has been established, the insured must show that the insurer breached the contract by engaging in misconduct, resulting in damages suffered by the insured.

During the course of an insurance bad faith lawsuit, an attorney may attempt to establish a pattern of bad faith practices. If claims are frequently mishandled, or if company procedures encourage the denial of claims, it may be easier to prove that an insurance company acted in bad faith.

It is important to note that some insurance policies include specific exclusions for coverage. For example, an automobile insurance policy may specify that insurance coverage may be denied if the insured is found to be under the influence of drugs or alcohol during a crash that they are claiming coverage for. In this case, the insurance company may not be acting in bad faith if a claim is denied.

Fires, vandalism, serious injuries, and injuries are just some of the incidents that can cause major suffering and financial hardship to those who experience them. When an insurance policy is purchased, it is under the assumption that the loss in such cases can be minimized. When an insurance company does not hold up their end of the bargain, the insured can suffer lasting consequences.

Nevada law requires that a bad faith claim must be made within four years of the adverse action made by the insurance company. When an incident occurs, insured parties should notify their insurance claims agents as soon as possible and review the terms of their policy. Documenting events, taking notes and photographs, and keeping copies of any communications can help greatly if a case progresses. A policyholder may be entitled to seek financial compensation from the insurer with the assistance of a bad faith insurance attorney.