Each month, drivers across California and beyond pay money to their insurance companies to cover their vehicles in case of an accident. However, when an accident occurs, many of these same drivers find that their insurance companies refuse to pay claims or delays the payments. While there are several valid reasons why an insurance company may deny a claim, there are also circumstances where an insurance company has acted in bad faith. If you’re dealing with an unresponsive insurance company, read on for more information about insurance bad faith and what you can legally do about it.
What Constitutes Bad Faith?
When an insurance company fails to fulfill its obligations in accordance with policy language or to abide by the laws of the state where the claim is made, the company is acting in bad faith. Some examples of bad faith when it comes to auto insurance policies include the following:
- Failing to disclose policy limits or to explain to the insured the applicable policy provisions or exclusions
- Refusing to pay a valid claim
- Failing to pay a valid claim in a timely manner
- Demanding an unreasonable amount of paperwork to process a claim, or asking for paperwork that is unnecessary
- Seeking information from the insured individual that is not required to make a determination on the validity of the claim
- Failing to deny a claim within the time allotted by the state
- Failing to provide an explanation to the insured individual as to why the company denied the claim
- Failing to settle third-party claims against the insured individual in a timely manner
- Failing to maintain adequate investigation procedures
- Failing to defend the insured individual against third-party claims
- Failing to notify the insured individual if the company needs more time to make a determination about the claim
- Making an unreasonably low settlement offer on a claim
- Attempting to convince a claimant not to hire an attorney
- Failing to pay on one part of a claim to influence other parts of the claim
- Compelling the insured individual to contribute to a settlement
- Fraud, malice, or intimidation against individuals making valid claims
What Does California Law Say About Bad Faith Insurance Practices?
California law protects state residents from insurance bad faith through its Fair Claims Settlement Practices Regulations. These regulations represent the minimum standards that insurance companies must follow when processing California claims. Some of the provisions of these regulations are:
- Insurance companies have 30 days to either pay a claim or provide a written explanation as to why they are denying the claim. If the insurer needs more time, it must provide the insured individual with written notice of this every thirty days.
- The state’s insurance commissioner may determine that a settlement offer is unreasonably low if it fails to consider evidence submitted by the claimant as to the value of the claim, advice from its claims adjuster as to the amount of damages, advice from its counsel as to the likelihood of recovery in excess of the policy limits, and the probable liability of the insured. The commissioner may also evaluate the procedures in which the insurer determined the dollar amount of property damage.
- An insurer may not tell an insured that his or her rights will be impaired if he or she doesn’t sign a form or release within a specific time period.
- An insurer cannot insist that the insured individual submits to a polygraph examination as part of the claims process, unless that practice is authorized in a signed insurance contract.
- Companies cannot deny claims based on a telephone or personal interview with anyone, unless that interview is part of the claims file.
- Unless reasonably necessary, an insurer cannot request a medical examination to determine liability.
- Insurers must provide written notice if they plan to pursue subrogation of a claim, and they must include in their subrogation demand the first party claimant’s deductible. Subrogation recoveries should be shared proportionately with the first party claimant.
- In first party automobile total loss claims, the insured has 35 days to find a comparable vehicle. If he or she is unable to do so, the insurer must reopen its claims file and must find a comparable vehicle for the gross settlement amount.
- The insurer cannot insist that the insured individual have auto body repairs made at a specific shop to repair damages covered by the insurance company.
What Should I Do If I Believe My Insurer Is Acting in Bad Faith?
If you suspect that your insurance company is acting in bad faith, you may do the following:
- Send your insurance company a polite but firm letter stating what has happened involving your claim and that you want your claim honored fully, promptly, and fairly. Be sure to keep a copy of this letter in your files.
- File a complaint with the California Department of Insurance. It’s important to note that the Department of Insurance does not have the authority to adjudicate an insurance dispute. However, it can investigate your complaint and let you know the findings of that investigation. However, even if the insurance company is at fault, the department cannot force them to pay your claim.
- Talk to your agent or insurance broker about the situation.
- Seek the guidance of an experienced lawyer who handles insurance bad faith cases.
Can I Sue My Insurance Company for Bad Faith Practices?
Yes, you can file a lawsuit against your insurance company for acting in bad faith whether your claim was a first-party claim (filed with your own insurance) or a third-party claim (filed with the insurer of an at-fault party). To successfully sue an insurer for bad faith, you must prove that the insurer withheld benefits due to you under the policy and that such withholding was unreasonable and without proper cause.
The damages you may be eligible to recover through a bad faith lawsuit include the following:
- Contract damages: These are the damages that your insurance company was contractually obligated to pay. This includes the compensation requested in your original, valid claim. You can also include the costs of interest, your defense, and any judgment or settlement on your behalf in accordance with the terms of your policy.
- Bad faith damages: This includes damages, such as emotional distress, brought about by the situation with the insurance company, as well as any economic damages that resulted from the bad faith, such as reasonable attorney fees, lost wages due to missed work, medical expenses if the stress from the bad faith damaged your health, opportunity cost in your business, and loss of property.
- Punitive damages: Punitive damages are designed to “punish” the defendant for particularly egregious behavior. In an insurance bad faith case, you may seek punitive damages if the insurer acted fraudulently or with oppression or malice.
Insurance Bad Faith in the News
In April 2019, CNN reported that the health insurance giant Aetna agreed to settle a lawsuit in which a company medical director in California stated under oath that he never looked a patients’ records when deciding whether to approve or deny coverage. That testimony prompted an investigation by the California Department of Insurance Commissioner. While the current commissioner, Ricardo Lara, claimed that he could not comment on the settlement as the investigation is ongoing, the former commissioner, Dave Jones, stated that at the time the state launched its investigation in early 2018, he found the case troubling. The settlement details were not made public, though an attorney for the plaintiff—a man with a rare immune disorder who was denied coverage while in college—stated that the settlement met the satisfaction of all parties involved. Others in the legal community expressed surprise over the settlement, as Aetna is known to not settle easily. Previously, the company lost a bad faith case in Oklahoma, which resulted in a $25 million verdict.
The medical director’s statement that sparked the investigation came during a videotaped deposition in October 2016. At the time, the medical director stated that he was following company training in which nurses review the records and give him recommendations as to whether to approve or deny coverage. Aetna previously stated that the director had misunderstood the questions he was being asked during the deposition. However, when he was provided the opportunity to correct his statements after reviewing the deposition transcripts, he accepted them under the penalty of perjury as correct.
Insurance Bad Faith? We Can Help
Insurance coverage is a contractual agreement between you and your insurance company in which you pay premiums in exchange for coverage provided to you according to the terms of your policy. Unfortunately, insurance is also a business in which companies may attempt to profit by acting in bad faith. Insurance law is complex, often leaving those who have suffered at the hands of bad faith insurance practices wondering where to turn or what to do. The San Jose lawyers at Golden State Lawyers are well-versed in insurance law and ready to help you fight for fair compensation and the coverage that the insurance company is legally obligated to provide. To schedule a free consultation and case review, call Golden State Lawyers at (408) 279-4222, or contact us online.