What Does The Term “Bad Faith” Mean?
What are common practices/examples?
Bad faith means an insurer acted unreasonably in denying a claim, such as denying coverage without performing a full and proper investigation or denying a claim for an improper motive. While it may seem impossible to determine the motive of an insurance company, bad faith can be proven by demonstrating that the insurance company’s actions are unreasonable and lack any justifiable basis.
How is bad faith defined in California insurance law?
You have probably come across the term “bad faith” in many different contexts, and you have an instinctual understanding of what it means to act in “good faith” or “bad faith.” When it comes to insurance law, however, what does it mean to say an insurance company is acting in bad faith? Is there just a general notion that insurers should practice in good faith, or are there specific practices that amount to bad faith? How do you prove insurance bad faith, and what can you do about it? Here we answer the question, “What does the term “bad faith mean?” and provide some typical examples.
What is bad faith?
An insurer commits bad faith when it denies a claim without proper cause. There is not one set test for bad faith. It depends on the type of claim and the actions of the insurer in addressing that claim.
California Civil Jury Instructions (CACI) address certain forms of bad faith, such as Failure or Delay in Payment (CACI 2331), Failure to Properly Investigate a Claim (CACI 2332), and Breach of Duty to Inform the Insured of their Rights (CACI 2333). Key components of these jury instructions are 1) unreasonable behavior by the insurer and 2) harm to the insured.
What are common bad faith practices or examples of insurance bad faith?
When a policyholder claims benefits under a policy, it is reasonable to expect the insurer to investigate to make sure that the policy is current and that the terms of the policy cover the claim. In fact, it would be irresponsible to shareholders if the company did not make sure it was only paying valid claims. Good faith disputes can arise regarding claims and can be resolved through litigation or other means. However, when the carrier acts unreasonably or its motives are solely to find a way to avoid paying a claim, then the insurer is arguably acting in bad faith toward the insured. Here are some of the most common ways in which insurance companies violate their duties to act in good faith and deal fairly with their customers:
Unjustified denial – Health insurers claim a requested procedure is investigational, experimental or not medically necessary. Life insurance carriers claim you did not make the proper premium payments. Long-term disability and long-term care insurers say you don’t need care, or you are ready to go back to work. Good faith disputes can be worked out, but when insurers make blanket decisions without looking at your case or make claims they can’t back up, they aren’t treating you fairly and may be trying to get out of providing the coverage they know they owe.
Failure to Fully Investigate – Insurers are required to fully and properly investigate a claim. If an insurer denies a claim without looking for and applying facts that demonstrate the claim should be paid, it commits bad faith. When a doctor has recommended a particular procedure, surgery, medication or course of treatment, insurance companies owe it to their policyholders to review the request in light of the individual’s particular health situation and needs and the current state of medical science. Blanket denials based on out-of-date internal guidelines don’t fulfill the insurer’s obligation.
Unreasonable delay – Most often, insurance covers sudden and unexpected events in the life of the insured. When you make a claim, it’s because you need coverage or benefits now. A delay in response from the insurer can mean a delay in needed medical treatment, or delay in payments you need to keep your home out of foreclosure and pay your monthly bills. Insurers may take a reasonable amount of time to investigate a claim, but they should make a decision and inform you promptly. Sometimes insurers intentionally drag out the process by making countless requests for documentation you’ve already provided, you can’t get, or they don’t really need. They may be trying to wear you down or intimidate you. Delaying tactics designed to avoid payment and get you to give up are examples of bad faith.
No reason given – The insurance company is obligated to give you a reason for its action, especially if you request one.
Lied or misled about coverage – Not all insurance companies are as trustworthy as others, and even within a reputable company, individual agents, adjusters, investigators and other representatives may still intentionally mislead policyholders about what kind of coverage they have. Company employees could issue a different policy than the customer thought they were getting, or they could change the policy after the fact. When insurers are caught making deliberate misrepresentations that hurt the insured, they can be liable for punitive damages on top of any money damages necessary to compensate the insured for their losses and harm.
Canceled the policy – Insurance companies will blindly accept your money month after month, year after year, but when you make a claim, they suddenly decide to review your history with them, all the way back to your application. They often seize on inconsequential information or information the agent told the insured need not be disclosed, to cancel a policy and deny a claim. Sometimes the information was provided to the insurer when the policy was taken out, but the insurer ignored it.
We hold insurance companies accountable for their bad faith practices. It’s all we do.
At Gianelli & Morris, we specialize in helping policyholders whose claims handling has been mistreated by their insurance company. We serve clients in Los Angeles and throughout California and have a strong record of success over decades going up against the biggest insurers in the state. Call our office if you think your insurer isn’t treating you fairly and giving you the coverage you paid for.