What is Insurance Bad Faith?

What is Insurance Bad Faith?

Insurance Companies are obligated under the law to handle and deal with insurance claims in “good faith.” In West Virginia, there are certain statutes that govern the obligations and responsibilities of insurance companies in handling claims under their own policies. Specifically, the West Virginia Unfair Trade Practices Act lists a number of obligations on the part of insurance companies in handling various insurance claims, and further, details what constitutes a violation of West Virginia law during the insurance company’s handling of these claims. W. Va. Code § 33-11-4(9).

Moreover, the West Virginia Insurance Commissioner has set out several regulations that complement the West Virginia Unfair Trade Practices Act and provides in more detail what conduct constitutes a violation of the WVUTPA.

Under the WVUTPA, “No person shall commit or perform with such frequency as to indicate a general business practice any of the following.” The Statute then goes on to list a number of actions that are considered to be inappropriate conduct on the part of an insurance company.

The below are examples of this list:

  1. Misrepresenting pertinent facts or insurance policy provisions relating to coverages at issue;
  2. Failing to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies;
  3. Failing to adopt and implement reasonable standards for the prompt investigation of claims arising under insurance policies;
  4. Refusing to pay claims without conducting a reasonable investigation based upon all available information;
  5. Failing to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed;
  6. Not attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear;
  7. Compelling insureds to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in actions brought by the insureds, when the insureds have made claims for amounts reasonably similar to the amounts ultimately recovered;
  8. Attempting to settle a claim for less than the amount to which a reasonable man would have believed he was entitled by reference to written or printed advertising material accompanying or made part of an application;
  9. Attempting to settle claims on the basis of an application which was altered without notice to, or knowledge or consent of, the insured;
  10. Making claims payments to insureds or beneficiaries not accompanied by a statement setting forth the coverage under which payments are being made;
  11. Delaying the investigation or payment of claims by requiring an insured, claimant, or the physician of either to submit a preliminary claim report and then requiring the subsequent submission of formal proof of loss forms, both of which submissions contain substantially the same information;
  12. Failing to promptly settle claims, where liability has become reasonably clear, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage; and
  13. Failing to promptly provide a reasonable explanation of the basis in the insurance policy in relation to the facts or applicable law for denial of a claim or for the offer of a compromise settlement.

In sum, it is important to be aware of your rights and the obligations of your insurance company throughout the claims handling process. If you believe your insurance company is treating you unfairly, consult with an attorney about your options.

Erica Cross explains the meaning of insurance bad faith cases in today's blog.