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Insurance Bad Faith – What Is It Exactly?

Insurance bad faith, which also goes by the term, insurance fraud, refers to the mistreatment of consumers and businesses by their insurance carriers. It is normally used in situations in which an insured person or entity is refused a settlement payout.

Insurance bad faith unfortunately occurs ever so often. A lot of insurance companies make use of statistics to know how much they need to pay out, depending on particular circumstances. Even with the insured person being fully entitled to a certain amount, the insurer may not pay that money in full. Either the individual or entity accepts the insurer’s decision or brings the matter to court for bad faith.

Three of the most common scenarios involving insurance bad faith are:

> insurer denying an insured party all the benefits stated in the insurance policy;

> insurer providing less compensation than what is guaranteed by the policy; and

> unwarranted payment delays.

Every insurance contract comes with a “covenant of good faith and fair dealing,” which may be implied or directly stated. That means the two parties – insurer and insured – are both obliged to follow what is in the contract.

This contract provides that the insurance firm should fully compensate the insured party in timely fashion under appropriate circumstances; otherwise, the company is considered to be in violation of the covenant of good faith and fair dealing. In certain states, statues or other regulation exist, covering bad faith by insurance providers.

When bad faith is exhibited by these companies, they may be subject to punitive damages, government penalties and statutory damage. Because there are different bad faith-related laws in different states, it is important for anyone with these issues to consult with a lawyer.

Insurance companies pay different bad faith damages, depending on the jurisdiction. The damages will be generally equivalent the actual compensatory damages the insurer, in a non-bad faith setting, would have paid out to the insured. In several states, punitive damages, or damages meant to punish an insurer for bad conduct, also apply. In some states, punitive damages come under a cap, but not in other states where there are no limits. Because insurance fraud or bad faith can be a complicated and often confusing matter, anyone considering to go to court due to such experience must seek assistance from a lawyer.

This type of case is usually accepted by an attorney on a contingency basis. That means the attorney will not be receiving payment directly from the client – not even from the award of damages he receives – but rather from the money that the court will order the insurer to pay the lawyer in a separate judgment.

If you believe your insurance company has acted in bad faith on your policy claim, talk to an insurance lawyer who can outline the steps you can take.

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