How Do I Know If I Have a Bad Faith Case?
When insurance companies accept premiums from customers to ensure protection from the ramifications of life’s pitfalls, such as automobile crashes, property damage, and even loss of life, they assume a position of trust. Because of this position and the influence it carries, the law imposes a special responsibility on insurers to deal fairly and in good faith with their policyholders and others in handling claims for benefits under insurance policies. When an insurance company fails to live up to this responsibility, its bad faith can have legal consequences.
In the realm of insurance, bad faith is an insurance company’s failure to be reasonable in handling a claim for benefits. Over 20 years ago, West Virginia’s Supreme Court described an insurer’s responsibility in handling claims as a duty to “give its insured’s interest at least as much consideration as its own interest.” Shamblin v. Nationwide Mut. Ins. Co., 183 W. Va. 585, 593, 396 S.E.2d 766, 774 (1990).
Bad faith claim handling can take many forms, some of which are clear, but others of which can be difficult to recognize for a policyholder who has experienced misfortune and is trying to obtain the insurance coverage benefits for which he or she has paid. For instance, an insurance company can act in bad faith by failing to act reasonably when defending a policyholder against a lawsuit under a policy of liability insurance, including failing to protect an insured by not settling a claim when there is a reasonable opportunity to do so. Shamblin, 183 W. Va. 585, 396 S.E.2d 766.
The West Virginia Unfair Trade Practices Act makes it unlawful for an insurer to engage in unfair claim settlement practices, which the law defines to include (among other things) misrepresenting facts or policy provisions, failing to promptly respond to communications about claims for benefits, refusing to pay claims without a reasonable investigation, failing to make prompt claim decisions, appropriate investigations, and fair settlements, forcing a policyholder to file a lawsuit to recover benefits, and failing to explain claims decisions. W. Va. Code § 33-11-4(9).
The Offices of the Insurance Commissioner of West Virginia have also established rules that provide guidance on what constitutes an unfair practice, including what makes an insurer’s response “prompt.” Under the OIC regulations, insurers an insurer must respond to a notice of claim and any other pertinent communication about a claim within 15 working days and must either provide a decision or an explanation of why a decision has not been made within 30 working days. W. Va. C.S.R. §§ 114-14-5, 114-14-6.7. Other states have similar laws, such as Chapter 3901-1 of the Ohio Administrative Code.
Another important part of the OIC regulations is the requirement that an insurer provides reasonable assistance to first-party claimants in complying with an insurance policy’s conditions and the insurer’s requirements. W. Va. C.S.R. 114-14-5.4. This means that when a policyholder makes a claim for benefits under an insurance policy, an insurance company cannot leave its insured to guess how to present his or her claim. Rather, the insurer must advise the policyholder on what information is necessary and what steps must be taken.
When an insurer acts in bad faith, a policyholder may recover compensation for the damage caused, including the inconvenience of being wrongfully denied coverage benefits and, in some cases, the costs of being forced to sue the insurance company, including attorney fees. In West Virginia, like many other states, while a policyholder may bring a lawsuit against his or her own insurer for bad faith claim handling, a third party (such as an individual whose claim against an insured is delayed by an insurer’s refusal of a reasonable settlement offer) may not sue the insurance company directly. However, third parties may file complaints with the Offices of the Insurance Commissioner.
Of course, an individual’s recourse against an insurance company for bad faith claim handling differs from state to state and depends on the particular circumstances. The situations described here are not the only ways in which an insurer can act in bad faith. On the other hand, just because there is a delay in processing an insurance claim or a disagreement about the appropriate amount of coverage benefits available does not always mean that an insurer has acted in bad faith.
Additionally, there are limits on the time in which an insured must take legal action to hold an insurer responsible for bad faith claim handling, in some situations shorter than the time in which other lawsuits must be filed. If you have questions about whether or not your insurance claim has been handled fairly, it is important to speak with a lawyer experienced in dealing with insurance companies as soon as possible to protect your rights.