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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 often used in situations where an insurance company refuses to pay out a settlement to an insured individual or entity.

Unfortunately, insurance bad faith is something that happens often. Several insurance companies rely on statistics when deciding how much they have to pay out in specific circumstances. Even if the policy entitles the insured person a certain amount of money, the insurer may refuse to pay it fully. Either the individual or entity accepts the insurer’s decision or brings the matter to court for bad faith.

The following are the three most common insurance bad faith scenarios:

> an insurer refusing to provide all promised benefits to the insured party.

> insurer offering less compensation than what the policy guarantees; and

> unjustified delays in payment to insured.

In every insurance contract, there is a “covenant of good faith and fair dealing,” which is either expressly stated or implied. That means the two parties – insurer and insured – are both obliged to follow what is in the contract.

In such a contract, the insurance company must fully compensate the insured party when appropriate and in a timely manner; otherwise, the insurer will have committed a violation of the good faith and fair dealing covenant. In some states, there are statutes or other regulations that govern bad faith by insurance firms.

When these companies exhibit bad faith, they can be subject to statutory damage, punitive damages and penalties imposed by the government. Bad faith claims are affected by different laws in different states, so anyone dealing with related issues with their insurers must talk to a lawyer.

Insurance companies pay different bad faith damages, depending on the jurisdiction. Generally, the damages will be equivalent to the compensatory damages an insured party would have received from the insurer a non-bad faith setting. In a number of states, punitive damages – damages intended as punishment for an insurer’s 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 kind of case is typically accepted on contingency basis by an attorney. That means the client will not be paying the attorney from the damages awarded to him, but rather from the damages that the court will specifically order paid to the attorney in a separate judgment.

If you think your insurer has acted in bad faith in relation to your policy claim, your first step is to see an insurance lawyer who can define the steps you must take.

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