Bad Faith Insurance
In your policy, the insurance company promises that it will (1) pay for your (first-party) loss and/or someone else’s (third-party) loss, and (2) defend you in the event of a third-party claim. While the policy identifies what an insurance company promises to do, the laws involving insurance often impose promises of how the insurance company must perform those duties. These are the minimum standards that an insurance company must meet in its performance under the policy. The phrase “bad faith” loosely sums up how the insurance company may not act when performing under the policy.
For a first-party claim in most States, there are laws that impose the promise that there will not be an unreasonable or vexatious delay in settling the claim. Examples of bad faith conduct include inadequate investigation of a claim; denial of a claim without obtaining satisfactory supporting evidence; failure to evaluate a claim “objectively”; unreasonable interpretations of policy provisions; unreasonably low settlement offers; denial of coverage based on extremely minor misrepresentations in the insurance application or false representations knowingly made by the insurer’s agent when filling out the application; and abusive or coercive practices designed to force an unreasonable compromise of the claim. Bad faith also lies where insurance company limits its investigation to the question of coverage and stands on its denial without considering the interest of its insured.
For a third-party claim, most States impose a duty to protect you from exposure to liability in excess of coverage. In conjunction with the right to control the defense, an insurance company has “the duty not to gamble with the insured’s money by foregoing reasonable opportunities to settle a claim on terms that will protect the insured against an excess judgment.” To fulfill its promise, an insurance company must hire competent counsel and also keep abreast of litigation. An insurance company must then devise a litigation strategy and make settlement offers within the policy limits as if the insurance company bore the full exposure. Stated differently, an insurance company’s duty in settlement is to act as if there are no policy limits. In fact, an insurance company may owe a duty to initiate settlement negotiations if the plaintiff has not done so and “the probability of an adverse finding on liability is great and the amount of probable damages would greatly exceed the coverage.”
Once a judgment or settlement “might” exceed policy limits, a conflict of interest exists. At that point, the insurance company must notify the insured. The insured then has the option of hiring his own attorney, for which the insurance company will be obligated to reimburse.
We protect the rights of insureds against insurance companies. Our lawyers have obtained over $700 million dollars in verdicts, settlements and other benefits on behalf of our clients. Our philosophy is simple. We make it our mission to provide you with the most aggressive, efficient, and effective representation possible. We accomplish this by investing in talented, dedicated and multi-dimensional professionals and arming them with cutting-edge technology.
If you believe that you have been the victim of any improper conduct, please call SL Chapman today at 800-550-2106 for a free legal consultation to investigate your situation and analyze your rights and remedies.
