It's The Law That Insurance Companies 'Willingly' Pay Claims Properly And Promptly (Good Faith) And That It Is Illegal To 'Willingly'
Discount, Delay Or Deny Payment Of Claims (Bad Faith)

http://www.badfaithinsurance.org/badfaith_faq.html

What is Bad faith Insurance?

Bad faith insurance is any matter regarding an insurance claim by an Insured that is wrongfully denied by the Insurer. An insurance policy is considered a contract between you (the Insured) and your insurance carrier (the Insurer).   This contract requires that your Insurer acts in "good faith" toward you. When an Insurer unreasonably withholds the benefits of the policy from its Insured, it is considered to be in "bad faith."

Insurance attorneys know that Insurers most frequently attempt to deny claims for any reason they can.    Furthermore, when an Insurer acknowledges that a claim or lawsuit is covered by the insurance policy, it most often attempts to underpay a claim.   To determine whether an Insurer is acting in good faith, the Court must determine whether or not the Insurer's conduct is "reasonable."   In most states, an Insurer may not put its own interest above that of an Insured.   To prove bad faith, the Insured need only to show that the Insurer failed to honor the contract and had no cause not to pay what was due.

The Insurer has a duty to deal fairly with Insureds.   Every insurance contract contains an unwritten covenant or promise of good faith imposed by law upon an Insurer to always act fairly towards its Insureds in handling their claims.   Insurers must always meet the reasonable expectations of the policyholder as well as give as much if not more consideration to the financial interests of its Insureds than it does to its own financial interests.

What are some examples of Bad Faith?

There are many examples of how an Insurer can commit bad faith, they include: failing to promptly and thoroughly investigate a claim; unreasonably delaying payment; unreasonably denying benefits to a claim; using unreasonable interpretations in translating policy language; refusing to settle the case or reimburse you for the entirety of your loss, etc.    Insurance Bad faith constitutes not only breach of your insurance policy contract with the Insurer but also includes injuries personally sustained outside of the insurance contract as a result.   If such a breach exceeds that of being "unreasonable" and is demonstrated to be dishonest, deceptive or fraudulent, a judgment may be obtained and punitive damages awarded exceeding compensation for the loss under the policy as punishment for bad faith and to deter similar conduct by the Insurer in the future.

Do Insurers have the right to deny a claim?

Insurers have the right to deny a claim where the Insured has not lived up to the insurance contract, or where the claim is not covered by the policy or is fraudulent.

What should an Insured do in the event of a claim?

An Insured should immediately notify the Insurance Agent; Collect and review the insurance policy as it relates to the relevant provision(s) of the claim; Most importantly, document all events, notes and all contacts and communications made, whether written or verbal with the Insurer and those related.   Submit your claim promptly as most state laws and most insurance policies require that claims be presented within a limited period after the loss, otherwise if the Insured waits too long, the Insured loses the right to seek benefit on a claim.

What if my insurance company denies my claim and appears to be committing bad faith?

If you still feel you are in the right after having reviewed your insurance policy, collected all of the correspondence you have had with your insurance company and other pertinent documentation, write a letter and send it certified mail to the Director of Claims of the Insurance carrier citing the relevant provisions of the policy and demonstrating that the Insurer's denial of claim benefits is unreasonable.   At the same time, write the Commissioner of the Department of Insurance in your State and for whatever its worth ask the Department for a review and assistance in the matter.

What if my insurance company still continues to deny my claim and commits bad faith?

Collect your policy and documentation and bring them to a qualified Insurance attorney. Insurance bad faith is a very specialized field and it is important to go to an insurance attorney.    An Insurance attorney should be able to determine after a quick consultation and review of the policy whether or not coverage applies for your loss, and whether or not your Insurer has committed bad faith. If you don't know an attorney, consult FBIC's Lawyer Directory.

What can I recover if I sue my Insurer for bad faith?

If the Court finds the Insurer to have acted in bad faith, the Insured is eligible to recover the benefits of the policy for the claim as well as all consequential losses and damages it suffered as a result of the Insurer wrongfully denying the claim including damages for emotional distress.   This also includes the Insured's attorneys' fees which you had to pay in order to force your Insurer to live up to its contractual obligations; and in some cases where the Insurer has exhibited flagrant, intentional and/or gross misconduct, punitive damages are awarded.

What are an Insured's options when an Insurance carrier commits bad faith?

When an Insurer commits bad faith, an Insured has three options: to negotiate a resolution and an acceptable settlement with the Insurer however if this fails (Insurers are masters of claims negotiation) the Insured is left with two options, to either do nothing and give up, or sue the Insurer.   A vast majority of people unfortunately choose to do nothing and give up. Frequently, when an insurance attorney becomes involved, an Insurer will generally take the claim much more seriously and look to modify and correct its earlier bad faith direction in order to minimize the amount of the claim, potential bad faith implications and loss and punitive damages against the Insurer.   Just as frequently, however, the Insurer may become even more difficult as it realizes that it now must justify its actions.    Typically, however, even when it is necessary to sue an Insurer for bad faith, the case is often settled before or at the time of trial.

Why do Insurers commit bad faith?

There is a very substantial benefit and good economical reason for Insurers to commit bad faith. Insurers receive thousands of claims every day many of which are wrongfully denied.   Very few Insureds dispute this wrongful denial and thus Insurers save considerable amounts of money which in reality they would otherwise be obligated to pay.   Here's an example how it works.    Let's say for example that an Insurer denies 100 claims.   Of these 100 claims, ninety-five go unchallenged and disappear while five claims are disputed.    Of these five, the Insurer reverses its earlier decision to deny coverage and agrees to pay on four of the claims but continues to refuse coverage on the fifth claim.    The fifth claimant then files a lawsuit and recovers bad faith and punitive damages against the Insurer.    Even if this claimant who filed suit recovers millions of dollars against the Insurer, the insurance company still saved millions of dollars by not having had to pay the other 95 claims which were denied and not disputed.   Thus, Insurers gain substantial financial and economic advantage by continuing to deny claims.

Bad Faith Claim Practices (aka Unfair Insurance Claim Practices)

The Insurance Industry has lobbied over the years to see that there is no federal agency which oversees the insurance industry, essentially leaving no federal law or enforcement to protect Insureds against Unfair Insurance Claims Practices. Currently this authority lays at the state level only.

Some states laws allow (some don't) for judges to award attorney's fees as well as punitive damages on behalf of the plaintiff suing an Insurance Company in a bad-faith insurance matter (an Insurer's unreasonable withholding of insurance policy benefits). The importance in having the threat of punitive damages (in an amount sufficient enough to deter malicious, fraudulent or oppressive conduct) being awarded in bad faith cases is enormous as it is the only financial incentive for an Insurer to abide by fair dealing and acceptable good faith standards with Insureds. In the absence of the threat of punitive damages, financially, an Insurer is actually encouraged to engage in unfair claims practices.

The fact that each state has its own system for overseeing insurance companies poses a great problem for policyholders particularly in those states where recent legislative changes and court decisions favorable to the insurance industry may encourage bad faith conduct. Victims of insurance company unfair claims practices are badly in need of federal regulations that, if nothing more, would at least establish a minimum single uniform national standard of Insurer conduct.

In the absence of such a national standard, and according to varying standards independently set by each state, Unfair Insurance Claim Settlement Practices are generally defined as "if the Insurer knowingly commits or performs with such frequency as to indicate a general business practice" according to the following:

1. Misrepresenting pertinent facts or insurance policy provisions relating to coverages at issue;
2. Failing to acknowledge and act with reasonable promptness 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 such insureds;
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 statements setting forth the coverage under which the payments are being made;
11. Making known to insureds or claimants a policy of appealing from arbitration awards in favor of insureds or claimants for the purpose of compelling them to accept settlements or compromises less than the amount awarded in arbitration;
12. 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;
13. 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;
14. 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;
15. Using as a basis for cash settlement with a first party automobile insurance claimant an amount which is less than the amount which the insurer would pay if repairs were made unless such amount is agreed to by the insured or provided for by the insurance policy.

Class Action

Class actions are a method for different persons to combine lawsuits because the facts and the defendant are similar whereby these individuals e.g. FBIC members of the proposed class, have similar claims and are by law able to be joined together to prosecute their claims in a more efficient manner. Class actions are designed to save Court time and allow one judge to hear all the cases at the same time and to make one decision that is binding to all parties.

In cases where money damages are sought, in determining whether a class action is a fair and efficient method of settling the controversy, the court will consider among other matters: whether the common questions of law or fact prevail over any question affecting individual claims, whether the size of the class will make handling of the claim arduous, whether the prosecution of separate claims would create varying adjudication and inconsistent standards of action or diminish the capacity of individual members to preserve their interests.

Courts will also consider whether the venue selected is appropriate for litigation of claims of the particular class. In addition, the court will examine the complexity of the issues, the expenses of separate litigation claims and whether there are conflicts among the interests of the class members.

Vacatur is an order by a court whereby a decision that has been rendered in a proceeding or judgment is set aside, annulled or vacated. Vacatur is a procedure by which a court either invalidates its own decision or the decision of a lower court. (FBIC comments as cited herein do not apply to when a higher court invalidates a lower court's wrongful decision). It is understandable as to why a higher court would invalidate a lower court's decision made in error but why would a court invalidate its own decision? This type of vacatur when a higher court invalidates its own decision occurs mainly when a losing party, e.g. an Insurance Company, agrees to pay the winning party, but only if the winning party joins with the losing party in requesting the judge to vacate the court's decision. Unfortunately once a decision is vacated in this manner, in most cases it winds up disappearing from all legal records, the very same records which judges and lawyers use to find precedents for common law and for the settling of future cases.

Generally, plaintiff insurance claimants overwhelmingly win their cases more and more today to include compensatory damages but only a few with substantial punitive damages awards, adequate enough to act as a potential future deterrent to hopefully stop or influence bad faith insurers from continuing their illegal practices.  (For more on those states which "state laws" permit punitive damage awards, click here).  Unfortunately, the punitive damages awards are usually appealed for as long as possible by bad faith insurers in order to put off having to pay. In addition, generally, the payment of many medium-size and larger verdict awards, that are exclusive of punitive damages, are also delayed as long as the courts and court actions allow the insurers and their defense lawyers to use the system to get away for as long as possible without paying the adjudicated claim and judgment amount.

Generally, the defense upon losing a court case and decision and depending upon the size of the award and the insurer's willingness to pay, the insurance company agrees to pay the amount of the verdict award and not to appeal or further appeal the decision only if the plaintiff agrees to have the court's decision "vacated" and the information surrounding the case be kept confidential as part of the terms and conditions of settling the case. Accordingly, through the "vacatur" process, the insurance industry removes from all records and publication the bad faith insurance court information from ever being viewed.  In so doing, experts estimate that 50-80% of all cases and case laws decided in favor of plaintiffs, policyholders and claimants are sealed, kept secret and/or erased (aka "vacatur") from court records.  Because of the agreed upon confidentiality and substantial number of cases sealed from view and/or erased from record, the number of published bad faith case verdicts available to plaintiff lawyers and the public have been minimized and articles on the subject kept limited. Further adding to this information imbalance, the McCarran-Ferguson Act of 1945 exempted the insurance industry from federal laws leaving insurance companies free to collect and share information and documents amongst themselves that are not available to policyholders, claimants, plaintiff insurance attorneys or anyone else.

Insurance companies will often pay the winning litigants more than they won in court, but only if the winner will agree to vacatur, the judgment being vacated and the case disappearing from record. Many court decisions that go against insurance companies disappear from record in this manner. In other cases the insurance company will pay a losing party not to appeal and let stand a judgment favorable to the insurance company. A decision in any insurance coverage case may have nationwide impact because of common insurance policy language.  As such, one decision can affect insurance claims for hundreds of millions of dollars in dozens of other cases where policyholders are trying to collect from their insurance companies. Therefore, the insurance industry has a huge vested interest in seeing that any precedent setting judgment that supports a policyholder over an insurance company is erased.

Courts justify vacatur on the ground that it promotes immediate settlement of disputes and thus helps to clear the court's docket. However, when a judgment is vacated, it most often disappears from all records with nobody knowing about it except those involved who are often sworn to secrecy as part of the settlement. In so doing, the law remaining on the books is skewed as it does not reflect all of the decisions on an issue. This allows parties in later actions to having to concede to argue the law and have the courts reach conclusions without the knowledge and benefit of having these vacated precedent setting case judgments to cite as reference and support their positions. The losers in the case of vacated insurance decisions are the insurance buying public who may find that the previous reported cases on the books wrongfully favor the insurance companies.

Insurance companies, whose lawyers are always in court, are the beneficiaries of vacated judgments. They have an enormous financial exposure and tremendous amount to lose if judicial decisions harmful to their industry and company interests are allowed to stay on the books. Outrageous, in essence, they engage in the practice of buying decisions that go against them by immediately paying the winners the amount awarded or more, provided the court vacates its decision. The policyholder and winning party often is willing to settle even after obtaining a favorable decision, because appeals by the losing side can delay or prevent payment of judgment until all appeals are concluded which can take a number of years. Therefore, to secure the benefit of its victory, the policyholder will often agree to vacate the decision in order to get its money sooner rather than later. If the policyholder does not agree, many times insurance companies will offer the policyholder immediate payment of even more money than the court awarded in its decision if the winning party will agree to vacatur. Courts frequently consent to that request since both parties are making the request.

The practice of vacatur in effect changes, misrepresents and rewrites history, the law and outcomes of future cases. The losers when vacatur occurs are all the other parties with similar actions who would have been able to negotiate an immediate satisfactory settlement or win their cases outright without litigation had the original decision(s) not been vacated. Other losers are all of the taxpayers and those who use the courts to resolve a dispute. Vacatur affects every court system and area of the law in America.

It is estimated by knowledgeable attorneys however that as much as fifty percent of judicial decisions favoring policyholders are wiped off the law books by the insurance industry by such vacatur actions. FBIC believes that the practice of vacatur should stop.