After a car accident, most car insurance claims follow a fairly predictable path toward fair resolution, sometimes with a few bumps along the way. But in some rare cases, the car insurance company—yours or the other driver's—fails to live up to its legal obligation to negotiate in good faith. What does it mean when a car insurance company acts in "bad faith," and how should you protect yourself?
This article discusses the elements that a car insurance claimant must prove in order to win a "bad faith" case, the kind of damages that are available, and an insurance company's possible defenses in the face of "bad faith" allegations.
Key phrases commonly used in the insurance industry sometimes make adjusters sit up and take notice. When you are negotiating a settlement with your own insurance company—as part of your uninsured or underinsured motorist coverage, for example—"bad faith" can be one such phrase.
Because your policy is a paid-for promise that the company will provide you with insurance protection, the company has a duty to provide that protection and to negotiate and settle claims in good faith.
Insurance companies for third parties (like the other driver) also have a duty of good faith toward an injured person, but that duty is much less stringent than the one owed by your own company. A claim of bad faith against a third party’s insurance company arises only if the company, through its insurance adjuster, has engaged in outright lies or fraud or has interfered with your ability to pursue the claim (such as by tampering with a witness, withholding evidence, or the like). If you believe a third-party insurer has engaged in such outrageous behavior, contact your state’s insurance department and an experienced personal injury attorney.
An adjuster for your own insurance company is not negotiating in bad faith just because you and the adjuster have a difference of opinion about how much your claim is worth. However, bad faith may exist if the adjuster for your own company has refused to give you any specific reasons for a very low settlement offer or has said or done something which might amount to improper settlement tactics.
While the term "bad faith" might imply that the claim was denied in order to advance the insurance company’s interests at the expense of the driver’s interests, that is not always a requirement in successful bad faith cases.
Generally, if an insurance company denies a claim simply due to a mistake or error in assessment, but has a reasonable basis for having made the mistake, that does not qualify as bad faith.
In some states, the policy owner must prove that the insurance company failed to make a thorough investigation before denying the claim. In other states, the policy owner must show more, i.e. that the insurance company missed or ignored obvious facts and information that would have proven the claim to be valid. In even stricter states, the plaintiff must show that the insurance company intentionally conducted an inadequate investigation in order to remain ignorant of facts that would have proven the claim to be valid. Finally, a policy owner can demonstrate bad faith in some states if it can show the insurance company followed a pattern or practice of not complying with state regulations that govern claims investigation.
The kinds of compensation ("damages" in legalese) you can recover in a "bad faith" case include:
Punitive damages may also be available if the policy owner can prove that the insurance company intentionally or recklessly acted to harm the policy holder. While most policy holders who win a bad faith claim may feel that punitive damages are justified, there must be clear proof of egregious conduct by the insurance company, not just opportunistic sloppiness.
A number of states have specific statutory penalties for insurance bad faith claims, and some specify that a successful plaintiff in a bad faith case be awarded three times the amount of his or her compensatory damages.
If an insurance company can prove that the policy owner made an intentional misrepresentation during the claims process, it probably won't be found liable for a bad faith denial.
An insurance company can also argue that its claim denial was based on a fairly debatable assessment of the claim—in other words, the decision, although perhaps ultimately incorrect, was not unreasonable.
Finally, if an insurance company asked a judge to decide (via "declaratory judgment") if it owed a policy holder coverage on a claim , a subsequent bad faith claim will not be allowed.
A written accusation of bad faith often gets prompt attention and, if justified, may rapidly provoke a change in the insurance adjuster’s settlement position. It is extremely difficult to win bad faith damages in court. Nonetheless, in settlement negotiations, the mere possibility of a fight over bad faith often can help nudge a reasonable settlement offer out of an insurance company.
[Your name and address]
[Insurance company/adjuster's name and mailing address]
Re: [claim number, date of accident, etc.]
Dear [adjuster's name]:
This letter concerns the discussions you and I have had over the past several weeks concerning settlement of the uninsured motorist claim referenced above. You have made only one offer of settlement in the amount of $1,500. This offer bears no reasonable relationship to my injuries, since my medical expenses alone total $2,750. Yet you refuse to provide me with any explanation for your position.
The only conclusion I can come to is that Metropolitan Insurance Company is refusing to negotiate in good faith.
If no fair and reasonable settlement offer, or explanation for the lack of such offer, is made by July 1, 20xx, I will be forced to take further steps regarding Metropolitan’s apparent bad faith.
Parts of this article are excerpted from How to Win Your Personal Injury Claim by Attorney Joseph Matthews (Nolo).