When an insurance company is responsible for settling a claim, it will often attempt to limit the amount that it must pay out. Insurance policies are promises that the company makes to the insured, and when that promise is broken, the insurance company is considered to be acting in “bad faith.”
Understanding bad faith will help protect your rights as a claimant and ensure fair treatment to you in the settlement process.
What Are Bad Faith Laws?
Bad faith laws are designed to hold insurance companies accountable for acting unfairly or dishonestly when handling claims. When policyholders conduct business with an insurance company, they do so with the reasonable expectation that the insurance company will honor its promise to pay on claims. Bad faith laws exist to ensure that insurance companies fulfill their contractual obligations to the insured and deal with claimants in good faith.
While New York does not have a firm law on bad faith, we do have some relevant cases that have held that an insurer, once they are aware of the facts and if the facts are in favor of settlement and plaintiff or claimant is willing to settle for the insurance limits, the insurance company must act in bad faith. Furthermore, once a claimant sends a letter to the responsible insurance company stating this, the insurance company is under a common law obligation to advise their insured that the claim can resolve.
Of course, most times, this would result in the carrier being directed to settle the case by the insurance company and not expose their insured to a judgment in excess of the policy. Here is a sample of the language a New York law firm should use when sending such a “bad faith” demand:
In light of the significant injuries sustained by Mrs. “DOE” and the strong liability in this case, we will consider the failure to settle this matter as “Bad Faith” under the prevailing and applicable New York State and Federal Cases. See Pavia v. State Farm Insurance Co, 605 N.Y.S.2d 208 (Ct. App., 1993). We will further consider your failure to inform you’re assured of the within offer to settle as evidence of bad faith under the recent case of Smith, et al. v. General Accident Insurance Co., 674 N.Y.S.2d 267 (Ct. App., 1998). At this time, you are in possession of all the medical records
The Duty of Good Faith and Fair Dealing
Insurance policies carry an implied duty of good faith and fair dealing. This means that insurance companies must act honestly, fairly, and in good faith when investigating and resolving claims. They are obligated to promptly investigate claims, communicate with the claimant in a transparent manner, and make reasonable efforts to settle claims. Any actions that demonstrate a lack of good faith, such as unjustifiably denying or delaying claims, can be considered bad faith and can result in legal consequences.
Examples of Bad Faith in Insurance Claims
Recognizing bad faith practices can help victims protect their rights as an insured person. Every policyholder is entitled to the support of the insurance company in the event of a covered loss. The following examples are the most common ways that insurance companies act in bad faith.
- Denying a claim without good reason
Oftentimes, insurance companies may quickly deny coverage for no apparent reason. When this happens, these companies expect the claimant to accept the denial and abandon their claim.
Insurance companies should always offer valid reasons for denying claims and describe how they arrived at their decision. If an insurance company has failed to give a reason for denying a claim or given an invalid reason, they are considered to be acting in bad faith.
- Offering less money than a claim is worth
We must not forget that insurance companies are for-profit organizations. They are incentivized to limit the amount they pay out in claims. Oftentimes, insurance companies offer policyholders less money than their claims are worth. As you will see further in this article, when this happens, it is important to have an experienced team of attorneys that understands bad faith laws.
- Delaying or denying decisions on claims
Insurance companies know that time is limited when approving requests for medical treatment. When a reasonable care plan is prescribed by a doctor, the insurance company has a duty to act on that request within a reasonable amount of time. If they unreasonably delay or deny your claim, you may have a claim for bad faith.
- Refusing to pay a valid claim or pressuring policyholders
An insurance policy is a legally defensible contract. If an insurance company fails to fulfill its obligations to the policyholder, it may be liable for bad faith breach of the insurance contract.
Remedies for Victims of Bad Faith Treatment
Under New York law, victims of bad faith insurance practices have the right to pursue legal remedies. If an insurance company is found to have acted in bad faith, the victim may be entitled to compensation for the original claim, additional damages resulting from the insurer’s bad faith conduct, and, in certain cases, punitive damages.
Having the assistance of a skilled personal injury attorney is crucial to navigating the complexities of bad faith claims and maximizing your chances of a favorable outcome.
How Leav & Steinberg Turned a $14k Low-Ball Offer into $100k With Bad Faith Laws
In September 2018, a client came to Leav & Steinberg after suffering injuries related to a car accident. She was an innocent driver in a supermarket parking lot when a car came out of a space and struck her while she was stopped waiting to enter the roadway. As a result of this incident, our client suffered a herniated disc and severe osteoarthritis in her hip, which was clearly aggravated by the accident and necessitated a surgical procedure. Our client was bedridden for quite some time after undergoing this surgery.
The policyholder in question for the at-fault car carried a policy limit for personal injury liability of $100,000.00. Given the strength of the liability and the serious injuries, it was the position of Leav & Steinberg that the client deserved the entire $100,000.00. However, the carrier decided it was in their interest to delay and deny and refused to pay the policy; but rather offered $14,000.00.
We rejected this, and when we finally appeared in Court in June 2023, we presented a bad faith letter with the language above. Within one day of sending that letter, the carrier immediately changed its tune and offered our client the tender of the full $100k policy.
Consult an Attorney Experienced in Bad Faith Claims
Our team of lawyers has extensive experience handling bad faith claims in the five boroughs of New York and surrounding areas.
If your or a loved one has been treated in “bad faith” by an insurance company, it is important that you understand your rights and the process involved in making a bad faith claim.
If you believe you’ve been treated unfairly by an insurance company or want to ensure that your rights are protected, contact us today to request a free consultation.