Understanding Insurance Bad Faith
When you buy insurance, you enter into a contract with your insurance company. Like any other, this contract is based on the principle of good faith – an expectation that both parties, you and the insurer, will act honestly and fairly. Unfortunately, situations can arise where an insurance company may act in “bad faith.” It is crucial for policyholders to understand what this means to protect their rights.
What is Bad Faith?
In insurance, “bad faith” refers to unethical or dishonest practices by an insurance company, particularly when handling claims. It’s when an insurer unreasonably denies, delays, or underpays legitimate claims made by policyholders.
Examples of Bad Faith Practices
- Unreasonable Delays: When an insurance company takes an excessively long time to process, investigate, or pay a claim without a valid reason.
- Unjust Denial of Claims: Denying a claim without a reasonable or legitimate basis.
- Lack of Communication: Failing to communicate adequately or timely with a policyholder about the status of their claim.
- Lowball Offers: Offering to settle a claim for an amount significantly less than what is reasonably owed.
- Misinterpretation of Policy Language: Deliberately misinterpreting or manipulating the language in an insurance policy to avoid paying a claim. Under Colorado law, any ambiguities or inconsistencies in an insurance policy are construed against the insurance company in order to provide the broadest possible insurance coverage. Thompson v. Maryland Cas. Co., 84 P.3d 496, 501-502 (Colo. 2005); Hecla Min. Co. v. N.H. Ins. Co., 811 P.2d 1083, 1090–91 (Colo. 1991).
The Impact of Bad Faith on Policyholders
Dealing with bad faith practices can be incredibly frustrating and financially damaging for policyholders. It can lead to unnecessary delays in receiving compensation, added stress during already difficult times, and, in certain cases, unbearable financial hardship.
Legal Recourse for Policyholders
Fortunately, policyholders are not without recourse. In Colorado, policyholders can pursue a breach of contract claim against their insurers for policy benefits. Additionally, when an insurance company has engaged in bad faith, the policyholder can file a lawsuit alleging what’s known as “common law bad faith.” This legal claim essentially allows a policyholder to recover compensation for injuries actually incurred by the policyholder, including for economic losses and emotional distress caused by the insurance company’s bad faith conduct.
In many cases, a policyholder can also file a lawsuit based on “statutory bad faith,” which is a reference to two sections of the Colorado Revised Statutes: 10-3-1115 and 10-3-1116. Under a statutory bad faith claim, the policyholder may additionally recover up to two times the covered benefit which has been unreasonably delayed or denied by the insurance company, plus attorneys fees and court costs.
Preventative Measures for Policyholders
To safeguard against bad faith practices:
- Understand Your Policy: Be familiar with what your policy covers and its limitations.
- Document Everything: Keep detailed, written records of all communications with your insurance company. Make sure to include: who you talk to, when you talk, and what you talk about.
- Seek Professional Advice: Consider consulting with a lawyer if you suspect bad faith.
Conclusion
Bad faith in insurance is a serious issue that can have significant consequences for policyholders. Being aware of what bad faith is and understanding your rights can help ensure you’re treated fairly by your insurance company. If you suspect bad faith, don’t hesitate to seek legal advice to protect your interests. Remember, insurance is a contract based on trust, and you have the right to expect your insurer to uphold their end of the deal with integrity and fairness.
At Levin Sitcoff, we can make sure your rights are protected and help you get the coverage your deserve. Send us a message or give us a call at (303) 575-9390 today!
Gideon Irving focuses his practice on representing plaintiffs in insurance bad faith, personal injury and civil rights cases. His dedication lies in securing justice and equitable compensation for his clients, always focusing on upholding their legal rights and ensuring they are rightfully acknowledged and remedied under the law.
