What Is Insurance Bad Faith?
Michael Babboni
Insurance Coverage
The goal of insurance, like any law, or business, is, in theory, about a win-win situation between the organization and the customers or clients. An auto repair garage, for example, accepts the money of a customer with a broken car, with the understanding that in exchange for this money, the car will be repaired. In the case of an insurance company, such as a car insurance company, or a health insurance company, money changes hands not for a specific service, but in case of emergency.With insurance, the understanding is that a customer will pay a certain amount of money every month, a premium, with the hope that the money will never be required. However, should a person—with car insurance, for example—get into an accident in which a car is damaged, then the insurance company will cover the repairs, as part of the agreement for the policyholder paying all that money every month. For the holder of a health, medical, or even life insurance policy, it is the same thing; in event that an injury or death occurs, the money that went into the policy every month will now “pay out” according to whatever conditions were stipulated.
However, all of this is according to theory, as well as a legal contract. But sometimes, it doesn’t always work out that way, even though that’s what a customer believed was going to happen. So what follows next in a situation where you, as a customer, have been paying for insurance, and now, when the event the insurance is supposed to compensate you for occurs, the insurance company decides not to pay out after all?
This is where a legal situation known as “insurance bad faith” may be occurring, and we’re going to take a closer look at it now.
Acting In Good Faith
First, let’s look at the opposite of bad faith, and that is acting in “good faith.” This is, in the simplest terms, acting in a sincere, and genuine manner, with no attempt to deceive or commit an act of fraud. If a person selling a child ice cream takes that money, and then gives the child ice cream, that is acting in good faith.
If the same person intends to sell the child a chocolate ice cream, but, purely by accident, mistakenly offers a fudge ice cream instead, even though that wasn’t the agreed upon fulfillment of the terms, of the business transaction, that is still considered acting in good faith, because the mistake was accidental.
As you might imagine then, acting in bad faith means a deliberate intention to deceive or defraud someone. If someone orders a drink at the bar, and the bartender agrees, but then hands over a drink that is about 75% water, and only 25% of the requested drink, that is acting in bad faith. Even though the bartender is aware of what is being asked for, there is a deliberate intention to not deliver on the goods asked for, at least not completely, in an attempt to save money.
The Insurance Situation
At this point, it shouldn’t be too hard to guess what’s going on with insurance bad faith. If a person has taken up an insurance policy, and has paid out the monthly premiums he or she is “holding up their end” of the deal. Paying on time every month. But if an accident should happen that is covered by your insurance policy—or so you think—and the insurance company refuses to pay, this clearly an act of bad faith.
Insurance bad faith can take many different forms. Refusing to pay out on a valid claim is the most obvious and dramatic of examples, but there are others, such as:
Paying Less
Sometimes, in order to avoid a much more troublesome legal battle, an insurance company may simply attempt to pay less than what the insurance terms outline.
Improper Investigation
A practice some unethical companies will resort to is not conducting the appropriate investigation as a means to avoid paying. If the insurance company doesn’t investigate, or investigates in such a way that they don’t arrive at the same conclusion you do, they can decide that your claim is without merit, and they have the “investigation” to prove it.
Misrepresentation Of Law Or Policy
In some cases, an insurance company may deliberately obscure a law or term in the insurance policy that can have an effect on whether your claim is honored or not. For example, they may deliberately fail to mention to you that your make of car isn’t covered by the insurance policy, and only bring it up once you get into an accident, pointing it out on your contract.
If you find yourself in a situation where you’re in disagreement with your insurance company you should seek the advice of a St. Pete lawyer to see what your options are.