Is Your Insurance Carrier Wrongfully Refusing Payment To You?

Quite often, I get calls from prospective clients wanting to know if their insurance carrier is acting in bad faith.  This is quite different from just a genuine dispute over liability or how much the claim is worth.  Sometimes, a refusal to pay a claim is reasonable in light of the circumstances.  But, inherent in all insurance contracts is a covenant to act in good faith.  An unreasonable denial of a claim, either based on liability or the amount of the damges, can be an act of bad faith.

It is well known that an insurance carrier has an obligation, implied in its contract with its insured, to act in good faith in all dealings, including investigation of claims. An insured depends on the peace of mind that comes with purchasing of a health insurance plan. When an insurance carrier fails in its obligations, the insured suffers the foreseeable consequences of not just unexpected out of pocket expenses, but the peace of mind that was bargained for. An insurance carrier must put its insured, at a minimum, in as much regard as itself, if not more so.

ESTABLISHING BAD FAITH

When talking of insurance bad faith, it inevitably requires a breach of the insuring agreement, the contract. There are certain elements that are common to all first party bad faith causes of action:

A. REQUIREMENTS

In the California Practice Guide — Insurance Litigation, Sections 12:822, it states:
"In General: To establish "bad faith" liability in first party cases, plaintiffs must show:

• Standing to sue: Plaintiffs must be an insured or express beneficiary under the insurance contract;
• Proper defendants: Privity of contract must exist between the plaintiff and defendant insurer;
• Benefits due: The insurer's withholding of benefits due under the policy, and;
• Unreasonableness: The insurer's withholding of benefits was "unreasonable" or "without proper cause" under the circumstances.

B. WHAT IS UNREASONABLE?

The following conduct by an insurance company has been held admissible to show it acted "unreasonably"[California Practice Guide — Insurance Litigation, Section 12:847]:

• Failure to investigate claim thoroughly;
• Failure to evaluate claim objectively;
• Unduly restrictive interpretation of claim form;
• Using improper standards to deny claim;
• Unreasonable delay in payment of claim;
• Dilatory claims handling;
• Deceptive practices to avoid payment of claim;
• Abusive or coercive practices to avoid payment of claim;
• "Postclaim underwriting";
• Other disregard for the insured's rights;
• Unreasonably low settlement offers;
• Unreasonable litigation or litigation tactics to avoid payment of claim.

Assuming bad faith is established, the insured is entitled to all the damages that he/she suffered as a result of the breach of contract and this also includes damages for emotional distress caused by the willful refusal to pay the underlying claim. There is no requirement that the insured show significant financial loss as a result of the carrier's conduct. It should be sufficient that the insured incurred attorney fees, had to make payments to medical providers out of savings and stocks, and any other foreseeable financial effects to qualify for emotional distress damages. In addition, the law is clear that if there is a finding of despicable conduct, malice or criminal intent, punitive damages may be awarded as well.

The above is not meant as a complete dissertaion on the entire topic of insurance bad faith, but is a good guideline to at least begin the process of understanding whether such a claim does exist.  If you think you have a potential insurance bad faith claim, contact me, Gordon A. Glenn, Esq., at (619) 285-8191 to set a free consultation.