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Understanding an insurance company’s bad faith actions

On Behalf of | Jan 27, 2023 | Insurance Law |

Many residents of Nevada have had unhappy experiences with insurance companies. These residents do not always understand that an insurance policy is nothing more – and nothing less – than a business contract that imposes specified legal duties on each party.

The policy holder’s main obligation under the contract is paying the premium when it is due, usually once a month. The insurer’s duties are more complex – the company owes its insured a legal duty to promptly investigate every claim received from the insured and to make an effort to settle or otherwise dispose of any liability claims against the policy holder.

If the policy holder fails to pay the premium on time, the company can simply cancel the policy.

But what if the insurer violates one or more of its duties under the contract?

If the insurer’s actions are intentional, the company may be deemed to have acted in bad faith toward the insured. A finding that an insurer has acted in bad faith may result in a judgment against the company requiring it to pay damages to its policy holder.

Understanding bad faith may assist policy holders in compelling the insurer to act according to the terms of the policy.

The many flavors of bad faith

An insurer may be deemed to have acted in bad faith toward its insured in many different situations. Generally speaking, any attempt by an insurer to avoid its contractual obligation to an insured is an example of bad faith.

An insurer that misrepresents the terms of the policy will be deemed to have acted in bad faith. Such misrepresentations may include deliberately erroneous statements about exclusions, non-disclosure of policy provisions, and similar distortions and falsehoods.

In deciding whether to accept the claim, the company must give the insurer’s statements credibility; it cannot simply ignore the insured’s version of events and rely on its own fact finding. The insurer faces extremely heavy burdens in investigating and settling a claim of liability against the insured.

The insurer must make a prompt review of the claim and give the insured prompt notice if the claim is not covered by the policy.

If the insurance company chooses to accept the claim, it must promptly investigate the facts giving rise to the claim. The company must also make a good faith effort to settle the claim without resort to litigation.

The insurer cannot make a “low ball” offer in the hope that the case will simply go away; if the damaged party is willing to accept a demand within the policy limits, the insurance company must have a sold reason for rejecting the demand.

Penalties for bad faith

A policy holder who believes that the insurance company acted in bad faith can sue the company for damages caused by the bad faith actions. Such damages may include attorneys’ fees spent on the claim against the company, any missed time at work, and most especially punitive damages.

Punitive damages are intended to punish and thereby deter bad faith by insurers. The amount of punitive damages is determined by the jury subject to review by the trial judge. An experienced trial lawyer can provide helpful advice on whether to pursue a bad faith claim against an insurance company.

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