Insurance in an important part of our society. We pay monthly premiums with the expectation that our insurance company will help us if something bad happens. This faith in insurance is a social good that lets us go about our lives with some financial security. Because of this, governments recognize this good, and require insurance companies to live up to their obligations to their insureds through the law. Under these laws, companies that unreasonably deny or delay settlement on a claim may be liable in a bad-faith lawsuit.
What is bad faith?
The term “bad faith” has been around since at least the seventeenth century. It has been applied to everything from existential philosophy to political disputes. In non-legal contexts, it typically implies a pattern of active deception. With respect to insurance, bad-faith conduct can include intentional fraud or negligently withholding policy benefits. Despite how it can often feel, insurance companies do not typically set out to actively defraud their customers. So negligent claims handling is a much more common form of bad-faith conduct. There are two primary reasons for this: many insurance companies overwork and under-train their adjusters.
Why do insurance companies commit bad-faith claims handling?
Chronic under-staffing of claims personnel is common throughout the insurance industry. And while some carriers are better than others in this respect, insurance companies tend to employ the smallest claims staff possible as a cost-saving measure. Individual adjusters are responsible for hundreds of cases and often lack the time to conduct thorough investigations or read the hundreds of pages of medical records in a claim. This can cause an adjuster to overlook crucial details, resulting in wrongful denial of a claim. Also, failure to respond to correspondence in a timely manner is another symptom of an overburdened claims staff. Insurers are required to respond to all letters and other correspondence within a reasonable time-frame. Failure to do so can constitute a bad-faith practice.
Lack of effective training is another problem that can lead to wrongful denial or delay of benefits. Because of this, many adjusters take a mechanistic approach in their evaluations, focusing on certain potentially irrelevant aspects, such as the severity of the accident, the extent of medical treatment received, or the injured person’s perceived credibility, rather than taking a holistic view of the situation. This can lead to dramatic undervaluation or outright denial of a claim that the company should pay.
What are the potential remedies?
Bad-faith litigation is how people can hold their insurance companies responsible for their actions. Interestingly, Colorado only allows first-party bad-faith lawsuits. Hence, usually you can only sue your own insurance company. Unfortunately you can’t sue the insurance company of the person who hit you and is refusing to pay for your injuries.
There are situations in which a plaintiff can enter into an agreement with the person they’re suing and acquire the ability to file a bad-faith lawsuit against the defendant’s insurance. This is what’s known as a Bashor Agreement and can be an effective tool for third parties to use in holding liability carriers accountable.
Finally, if your insurance company drops the ball on your claim, consider consulting with an experienced plaintiff attorney. See if you have legal recourse.