If you've ever had a bad encounter with your insurer, you're not alone. Most of the time, insurance companies hold all the cards. They charge you monthly premiums, but when you file a claim, they look for any opportunity to deny or minimize the payout.

In many cases, insurance is hardly a fair system. But laws in California require that insurance companies at least observe the most basic standards of fairness and honor the contracts they have with policyholders.

In every insurance contract is an "implied covenant of good faith and fair dealing." When insurers violate this covenant, they are acting in bad faith and could face legal consequences on two fronts. First, they can be sued for breach of contract. Second, they can be sued for bad faith, which allows policyholders to claim additional damages as well. Recoverable damages could include:

  • The value of the claim
  • Pain and suffering
  • Statutory attorneys' fees
  • Punitive damages

In many cases, damages in the insurance bad faith context are not limited to simply the value of the claim.

What Are Some Examples Of Insurance Bad Faith?

There are many instances in which an insurance company will act in a way that seems unfair but is nonetheless completely legal. In other words, unfair doesn't meet the standard of bad faith in all cases.

That being said, here are some examples of actions that often do constitute insurance bad faith:

  • Canceling your insurance policy simply to avoid honoring your claim
  • Denying coverage for a valid claim without offering a reasonable explanation
  • Accusing the policyholder of fraud (with little or no evidence) as an excuse to avoid paying a claim
  • Taking too long to process and pay a claim (known as undue delay)
  • Offering a final settlement amount that is unreasonably low
  • Only paying partial benefits
  • Failing to adequately investigate a claim
  • Failing to defend the policyholder against a third-party claim and/or unreasonably refusing to settle with a third party
  • Seeking evidence to deny a claim without seeking evidence to honor a claim

It is important to note that in California, insurance bad faith only applies to your relationship with your insurance company (first-party claims). If you were involved in a car accident, for example, you could not sue the other driver's insurance company for bad faith.

Did Your Insurer Act In Bad Faith? Contact Us For A Free Discussion About Your Case.

Haffner & Morgan, LLP, is based in San Diego and serves clients throughout Southern California. To take advantage of a free initial consultation with one of our experienced lawyers, call us at 800-511-7834, or send us an email.