MISSION (NOT) IMPOSSIBLE: QUICK FACTS ABOUT BAD FAITH INSURANCE CLAIMS IN CALIFORNIA

Bad faith insurance claims are among the most frustrating for clients as they are against a claimant’s own insurance company. These claims are difficult to prove but not impossible. In instances where bad faith can be attributed, it is important to hold insurance companies accountable.

What is a “Bad Faith” Insurance Tort Claim?

Bad faith insurance claims relate to the denial of claims/withholding of benefits, and require evidence that benefits due under the policy have been withheld unreasonably or without proper cause.

In a nutshell, under your policy, your insurance company owes you a “duty of good faith and fair dealing.” This duty is unconditional and independent of the performance of the policyholder’s contractual obligations. An insurance company’s obligation of good faith requires that it make an honest, intelligent, and knowledgeable evaluation of the claim on its merits before denying coverage.

When an insurer decides to withhold or delay payment on a policy, it proceeds at its own risk; erroneous denial or delay of coverage required by the policy, regardless of intent, may result in liability by the insurer for consequences of its breach of good faith and fair dealing. The term "bad faith" does not necessarily mean "positive misconduct of a malicious or immoral nature… it simply means the insurer acted deliberately.”

However, “mere errors” by an insurer are not enough to make conduct bad faith, because, fundamentally, bad faith conduct must be unreasonable. If the insurance company has a genuine dispute with its insured as to coverage liability or the amount of the insured's coverage claim (even though it might be liable for breach of contract) an insurance company is not liable in bad faith tort. This genuine dispute can be created by the insurance company if they can show they fulfilled their duties and acted reasonably given the circumstances (which can include showing that they relied upon their own experts and Doctors). Accordingly, actually proving bad faith is difficult, but, with the right set of facts, it is not impossible.

Examples of Bad Faith Conduct

Examples of bad faith conduct can include:

• Ignoring available evidence that supports claims and focusing only on those facts which justified a denial of the claim.
• Failure to evaluate a claim objectively.
• Unreasonable delay in payment because of hostility toward the insured or the claim.
• Denial of benefits on the basis of unduly restrictive interpretations of policy provisions or information provided by the insured during the claims process.
• Failure to diligently search for evidence which supports its insured’s claim when investigating a claim. If it seeks to discover only the evidence that defeats the claim, it hold its own interests above that of its insured.
• Arrogance or hostility by claims personnel may be evidence of “bad faith” claims handling.
• An insurance company cannot attempt to settle a claim for an unreasonably low amount.
• If the insurer’s investigation was biased the insurer is precluded from invoking the defense of genuine dispute.
• Denial of disability benefits based on a futile attempt to return to work will not preclude recovery under a disability policy.
• Failure to have written standards on claims handling, and is thus an act of bad faith
• Engaging in a pattern of unfair practices.

*****DISCLAIMER: THIS LIST IS NOT EXHAUSTIVE. BAD FAITH INSURANCE CLAIMS ARE HIGHLY FACT SPECIFIC, IF YOU BELIEVE YOU HAVE A BAD FAITH INSURANCE CLAIM, EVEN IF NOT SPECIFICALLY LISTED ABOVE, IT IS IMPORTANT TO CONSULT WITH AN ATTORNEY IMMEDIATELY.

Damages Available for Bad Faith Claims

Generally, damages available could include contractual damages, emotional distress damages, Brandt attorney’s fees and costs, and punitive damages.

• Contractual Damages- An insured who is denied disability benefits is entitled to the value of the loss of use of the money from the date of the breach to the date of recovery. In addition, where denial of the benefit is unreasonable, the insured is entitled to recovery of future harm, including loss of future benefits.
• Emotional Distress Damages- Unreasonable denial of benefits also supports an award of emotional distress damages, which need not be severe or result from outrageous conduct. Damages for mental suffering may now be recovered in the absence of either physical injury or impact. Damages for emotional distress are also recoverable based on the preexisting relationship between the parties.
• Brandt Attorneys’ Fees and Costs- Where the insured has retained an attorney and incurred legal expenses and attorney fees in conjunction with the recovery of contract benefits, damages also include the expenses and attorney fees incurred by the insured.
• Punitive Damages- These damages are designed to punish. There is a high burden to obtain punitive damages as the conduct cannot be merely negligent. However, where the insurer has acted in a conscious and willful disregard of the insured’s rights under their policy, the insurer may also be liable for punitive damages. An insurance company also is open to punitive damages if it breaches the implied covenant of good faith and fair dealing by attempting to avoid a claim through trickery or deception.

Important Tips

If you think you have a bad faith insurance case, it is important that you immediately consult with an attorney as there are certain deadlines that may run from the date the bad faith conduct occurred or when there was sufficient facts for inquiry notice. There are certain tips in making sure you are prepared for claims:

• Save all correspondence, notes, and evidence of communication with the insurance company, including any notices of claims;
• Be sure to take down the first and last names of anyone that you speak with at the insurance company, along with any employee ID;
• Keep a copy of any and all documentation related to any injuries sustained whether physical or financial in nature;
• Move quickly to contact an attorney so as to preserve any deadlines.

Conclusion

Bad faith claims exist but are difficult to prove. However, there is true bad faith conduct at issue. The insurance company should be held accountable for not treating you fairly.