When delayed claim payments are the result of bad faith conduct by insurance companies, the insurer can be held liable for significant damages.
Bad Faith Insurance Claims
Bad faith conduct may result in legal action against insurance companies who delay or deny claims when liability is clear. The specifics of insurance policies differ between states and insurers, but all insurers have a legal obligation to abide by the implied covenant of good faith and fair dealing. Bad faith insurance cases represent intentional dishonesty on the part of the insurer who fails to fulfill the contractual or legal obligations or violates the basic standards of honesty and fair dealing.
When is an insured legally entitled to bring a civil action against their insurance company for failing to meet its statutory obligations? Three elements must exist for a successful a bad faith lawsuit: the insured provided proper notice to the insurance company; there is a determination of coverage liability; there is a determination for the insured’s damages.
Insurance companies who act in bad faith and don’t deal fairly with policyholders may face significant liability for the entire amount of damages, which could be far beyond the policy limits. Penalties for bad faith may include:
- Monetary damages (including in some cases treble damages)
- Consequential damages
- Interest penalties
- Punitive damages
- Attorney’s fees and litigation costs
- Loss of business license
Consequential damages for the tort of bad faith may be paid to the insured to cover any additional damages that result from failure to pay, delayed payments, or other bad faith conduct. In cases of commercial policyholders, if failure to pay or delayed payments leads to collapse of the insured’s business or bankruptcy, the insured may seek all resulting losses as extra-contractual damages. This type of claim may result in significant financial payments to the insured for incurred expenses, lost sales, and the value and future earning potential of the business. Although direct damages are typically limited by policy limits, consequential damages are not limited.
When filing a bad faith insurance claim in Nevada, the claim must be filed in a timely manner to meet the statute of limitations for personal injury claims: 2 Years for Personal Injury; and 2 Years for Wrongful Death.