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Defending against bad faith claims

On Behalf of | Oct 1, 2021 | Insurance Law |

In insurance law, insurance companies owe certain commitments to their policyholders, and a perceived failure to adhere to the terms of the policy can bring on a bad faith claim. Unfortunately, Las Vegas and Reno area insurance companies often face allegations of bad faith that are often a litigation ploy to force them to pay for other claims that are without merit.

Receiving a claim denial in itself is not justification for such a cause of action. Policyholders who have not fully read or understood the terms of the contract, or who believe a settlement offer is too low, do not have a legitimate claim. Sorting through the misunderstanding through mediation is a start, but building a strong defense may be necessary if the case goes to trial.

The duties to policyholders

 Insurance companies owe important duties to their policyholders, and a perceived failure to fulfill these obligations can result in a bad faith claim. These include:

  • The duty to investigate a claim and provide findings
  • The duty to indemnify and to pay the settlement agreement to the limit of their coverage
  • The duty to defend the policyholder against a claim
  • The duty to settle reasonably, recognized in some jurisdictions, in which a settlement is advantageous to a lawsuit that would expose the policyholder to damages above the limit of the policy

Defenses against bad faith claims

Claims of bad faith usually arise from a failure to provide a benefit as described in the insurance policy. The insurer often uses a defense based on another section of the policy, especially in the description of the benefit, who is insured or the limitations of the benefit.

Another defense comes from the exclusions in the policy or the failure by the insured to satisfy certain conditions that were the cause of the claim denial. Policy exclusions can include business pursuits, professional services, a household exclusion, or childcare services. In this case, the burden of proof is on the insurer to provide the applicability of the exclusion. Conditions, which are often toward the end of the policy, refer to the conduct of the insured, and may become a factual dispute of the violation of a condition in the policy.

There is also comparative bad faith. Depending on the jurisdiction, the duty of good faith and fair dealing can apply to both parties, and a breach of that duty on either side can result in a claim or defense. As a tort, bad faith generally falls under a statute of limitations, so a defense strategy may highlight the earliest time of the claim denial.

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