Insurer’s Liability for Bad Faith

Most states mandate insurance coverage for vehicles and many people purchase additional insurance in order to protect themselves in the case of damage, total loss, and personal injuries. We trust insurance companies to step up and cover the losses when an accident has occurred after years of paying premiums. However, not all claims are handled properly, and if your claim has been denied in bad faith, there are remedies against insurance companies.

Bad faith denial of a claim occurs when an insurance company does not have a reasonable basis for denying benefits under the policy and the insurance company knows or recklessly disregards its lack of reasonable basis in denying the claim.[1] A refusal to pay does not  have to be fraudulent in order to be in bad faith. The most common area of bad faith litigation occurs when an insurance company fails to make a reasonable offer of settlement, “Low Balls”, or refuses to make a settlement offer at all. Courts have routinely found bad faith where there is inadequate investigation of a claim, misrepresentation of facts or policy provisions, and excessive and unreasonable delay in the handling of claims.

Not all denials of claims are actionable, and courts will examine the particular facts of each case. Generally, when an insurance company acts in good faith, even if they decided the claim incorrectly, they do not bear liability. For example, if an insurance company conducts a reasonable investigation or reasonably relies on experts, courts are reluctant to find bad faith. This most commonly occurs when insurance companies rely on medical information from healthcare professionals that turns out to be incomplete or incorrect. Health problems and injuries can be misstated and can take time to fully develop and be documented.  In some situations, reasonable medical experts can differ in their opinions or diagnosis, causation and prognosis.  In these types of cases, the insurance company will still be liable under the policy but may not be liable for bad faith or punitive damages.

A bad faith claim against an insurer may result in liability beyond the policy limit. When a plaintiff establishes that the insurer has acted in bad faith the insurer may be exposed to punitive damages, interest on the amount of the claim from the date the claim was made, as well as attorney fees and court costs.[2]

The attorneys at Dalton & Associates, P.A. have assisted many clients whose claims have been denied by insurance companies in bad faith. We understand the challenges that arise when a claim is denied and the ways in which it impacts clients’ lives. With compassion and understanding, our firm aggressively represents our clients in obtaining just compensation.

[1] Terletsky v. Prudential Prop. & Cas. Ins. Co., 437 Pa. Super. 108, 125 (1994). Would also consider citing a Delaware case on point here too.

[2] Insurance Bad Faith in Pennsylvania § 1:06.