Florida Insurance Claims Attorneys

5 Examples of Insurance Bad Faith

Insurance bad faith refers to unethical or unfair practices conducted by an insurance company in handling a policyholder’s claim. This breach of good faith and fair dealing can take various forms, but here are the five most common examples.

Examples of Insurance Bad Faith

1. Denial of a Valid Claim

Perhaps one of the most distressing examples of bad faith is when a valid claim is wrongfully denied. This can be a distressing situation for homeowners who are relying on their insurance coverage to recover from losses due to property damage or other covered events. Such denials can stem from various reasons, including misinterpretation of policy language, unfounded allegations, or even deliberate attempts to avoid paying out the claim.

Example: Suppose a policyholder experiences significant water damage due to a burst pipe in their home. They promptly notify their insurance company, provide all necessary documentation, and cooperates fully with the claims process. However, the insurer, without valid justification, denies the claim, citing an obscure policy clause that does not actually apply to the situation.

2. Delaying Payment

When an insurance company approves a claim, you have the right to receive payment on a claim within 90 days. When an insurer unjustifiably prolongs payment, it places undue financial strain and emotional distress on the policyholder, who relies on timely compensation for repairs or replacements. Insurance companies have a duty to promptly investigate and process claims, and any unreasonable delay in fulfilling this obligation constitutes a breach of the insurer’s duty of good faith and fair dealing.

Example: Suppose a policyholder files a legitimate claim for significant property damage caused by a hurricane. The insurance company, despite receiving all necessary documentation and evidence, unnecessarily drags out the claims process over an extended period. They may repeatedly request additional information, conduct multiple redundant inspections, or fail to communicate promptly about the progress of the claim.

3. Failure to Investigate

Failure to investigate occurs when an insurance company neglects its duty to thoroughly and impartially assess a claim. This breach of good faith means that the insurer conducts a hasty or biased examination of the damages, leading to an inaccurate valuation of the claim. This practice is highly detrimental to policyholders, as it often results in insufficient compensation for the actual cost of repairs or replacements.

Example: Suppose an insurance company promptly sends an adjuster to assess the damages from a burst pipe. However, the adjuster conducts a cursory examination, only focusing on visible water stains and surface-level damage. They do not thoroughly inspect the walls, flooring, or underlying structures for potential hidden damages. As a result, the adjuster undervalues the claim, providing a settlement offer that covers only a fraction of the actual repair costs.

4. Refusal to Defend

When an insurance company fails to fulfill its duty to provide legal defense for a policyholder in a covered claim, it is known as refusal to defend. This obligation is a fundamental aspect of homeowners insurance. This breach of duty can leave the policyholder vulnerable and exposed to legal liabilities, potentially leading to significant financial and legal repercussions.

Example: An example of refusal might be a scenario where a homeowner is facing a lawsuit for a covered event, such as a guest being injured on their property. The homeowner files a claim with their insurance company, expecting the insurer to provide legal representation and cover any resulting damages. However, the insurer denies the claim, asserting that the incident falls outside the scope of coverage. As a result, the homeowner is left to handle the legal defense and potential settlement or judgment on their own, despite having a valid claim under their policy.

Coercive Tactics

Coercive tactics involve the use of aggressive or intimidating strategies by an insurance company to dissuade policyholders from pursuing a legitimate claim. These tactics can create an environment of fear or pressure, making policyholders hesitant to assert their rights. Coercive tactics may include threats of claim denial, misleading statements about coverage, or attempts to manipulate policyholders into accepting inadequate settlements.

Example: Suppose an insurance adjuster insists that if a policyholder pursues a claim further, their policy could be canceled, or their premiums substantially increased.

Examples of Insurance Bad Faith

Legal Options for Insurance Bad Faith

When bad faith practices occur, policyholders have the right to pursue legal action against their insurer. However, due to the complex nature of these cases, it is critical to hire a Florida insurance and bad faith lawyer. They understand the specific laws and regulations governing insurance companies’ obligations, enabling them to build a strong case on your behalf. They will ensure you recover the maximum amount of compensation possible.