What is Bad Faith?

The whole reason that a person or business purchases insurance is to provide financial security if there is a loss.  A policy of insurance is a written contract to provide financial assistance in the event of a loss that is covered by the insurance policy.  The insurer by selling you that policy has legally agreed to treat you in good faith and to deal fairly with you if there is a loss. If your insurance company applies improper or illegal claims handling practices when adjusting your claim, and those practices are against the generally recognized industry or Florida standards for the handling of similar claims, then the insurer is considered to have acted in “bad faith.” This can form the basis for a lawsuit but only after you prevail on your original claim. Prevailing on your original claim can, at times, even include the settlement of a disputed claim with the insurer.

Improper handling practices of claims may be an insurer’s:

  • Inability or refusal to fully and/or properly investigate the claim within a reasonable time frame;
  • use of unreasonable delay in payment, delay in the adjusting of the claim, unreasonable requests for unnecessary or voluminous documentation or irrelevant records;
  • unreasonable claim denials;
  • refusal to pay the proper value of your valid claim;
  • unreasonable interpretation of policy language;
  • and misrepresenting insurance policy coverage provisions.

It is important to realize that just because an insurer may reject your claim or pay less than sought is not always the result of bad faith by an insurer. Even after a court decision determines that the insurer was wrong in its coverage decision or payment decision, the insurer still may have had a legitimate reason for its coverage or payment decision, but that is not always the case. It is all too often that the insurer and its employees place its interests in front of their policyholders causing damage.

There are times when the handling of the claim is based upon the insurer’s own claims handling guidelines which are designed to lower costs and increase profits. The insurer’s own claims handling guidelines may limit the adjuster’s ability to timely and fairly process a claim. When the insurer violates Florida law by applying unfair and deceptive claims handling practices, the law allows in certain circumstances a potential claim for punitive damages. Punitive damages are allowed by the court in an effort to punish the insurer for taking such unfair and improper actions, and an award of punitive damages are in excess of the insured’s contract damages.