What Is Bad Faith in Insurance Cases?

What Is Bad Faith?

As it relates to the law, bad faith generally refers to any act of fraud or dishonesty in a transaction and/or breaching an obligation outlined or inherent in a contract. Bad faith can include intentionally neglecting to honor fair dealing and good faith standards, acting with fraudulent intent, or simply failing to perform one’s duties.

The Responsibilities of an Insurance Company

Insurance companies owe policyholders a duty of care to act in good faith. However, the duties of an insurer vary based on your contract or policy terms. Some of the most standard duties insurance companies have include:

  • The duty to defend. If a claim is made against a policyholder, the policyholder’s insurer to defend them (even if your policy has coverage limits concerning lawsuit defense).
  • The duty to act. Once a claim is made, insurers have a duty to promptly and fairly investigate a claim.
  • The duty to pay. If an insurance payment is owed to a person, the insurer has the duty to promptly pay the claim.
  • The duty to disclose. Insurers must honestly disclose significant information to policyholders.

Insurance Bad Faith

With bad faith insurance claims, the claimant (or filing party) is aiming to prove that their insurer did not honor their policy or contract intentionally and/or failed in their duties. Bad fail insurance claims can arise when policyholders believe that have been unduly denied coverage or left unprotected by their insurer.

Common reasons bad faith insurance claims are filed include:

  • An insurer denies a claim after the contestability period because of a minor mistake on the application.
  • An insurer denies a claim or policy benefit without a valid reason.
  • An insurer did not disclose policy limits.
  • An insurer fails to offer a valid reason for a claim denial.
  • An insurer fails to respond to a claim in a reasonable time frame (without a valid reason).
  • An insurer lies to or misleads a claimant about their policy terms, how to file a claim, legal deadlines, or other relevant information.
  • An insurer tries to settle an insurance claim after altering the application and failing to get the claimant’s consent.

Examples of Bad Faith Insurance Claims

Here are a few examples of bad faith insurance claims (real and fictional):

  • The Rainmaker (1997) is a film starring Matt Damon, Danny Devito, Jon Voight, and several other “big name” actors. While this film is not based on a true story, the movie does showcase an example of bad faith insurance. Matt Damon plays an attorney who recently passed the bar exam that represents a dying man and his family in an insurance bad faith case. During the course of the movie, we learn that the Black family has a medical care insurance plan with Great Benefit Insurance, and the insurance company denied to cover the cost of a bone marrow transplant for 22-year-old Donny Ray, who has leukemia. The insurer actually denied the claim request eight times without providing a reason for the denial, and they claimed that they only received one claim. In court, it is shown that they also delayed their investigation and response to the claim and that they train employees to deny or ignore “expensive” claims.
  • In the early 2000s, State Farm was sued after they refused to pay a settlement offer. Curtis Campbell, a State Farm auto insurance policyholder, caused an accident that led to the death of a person as well the permanent disablement of another. State Farm claimed they were not liable and declined to settle the claims made by the injured parties, despite the fact that Campbell was covered by a $50,000 policy limit.
  • In 2022, a family won a $200 million settlement in a bad faith insurance claim made against Sierra Health & Life. Bill Eskew suffered from lung cancer, and when looking for a new insurer, his wife not only disclosed to Sierra Health & Life that Eskew suffered from cancer but also that he may qualify for (and need) proton therapy treatment for his cancer. The insurer claimed that this treatment option was covered; however, after deciding to have a policy with the company, their claim for proton therapy was denied as the insurer claimed their policy did not cover this treatment. Bill Eskew had to try alternate treatments, including modulated radiation therapy which caused him to suffer from serious side effects. Because of the side effects and the cancer, he died in 2017, and his family filed a suit against Sierra Health & Life for bad faith insurance, claiming the company misled them about their policy and did not investigate the proton treatment option before denying the claim.

Contact Our Firm for Legal Counsel

If you or a loved one have suffered because your insurer failed to uphold their duties, Busch, Reed, Jones & Leeper, P.C. can advise you of your legal rights and options. Our bad faith litigation attorneys have over a century and a half of collective legal experience, and we have the training, experience, and knowledge needed to help you smoothly navigate your case and make informed case decisions. Once you suspect your insurer is not living up to their duties, contact our firm as soon as possible.

Learn more about our bad faith litigation services by scheduling an initial consultation. Contact our firm today at (770) 629-0154.