Automobile, homeowners, business, health and disability insurance coverage may cover different types of losses, but they all have one thing in common: they all provide “peace of mind” coverage.
People generally buy insurance and pay premiums so they will have the comfort of knowing they will be reimbursed for their losses if there is an event that causes injury or damage to themselves, their loved ones or their property. Unfortunately, there are times when a person makes a legitimate claim and the insurance company will not pay the claim or does not pay on time.
That can be insurance “bad faith.”
Paying for insurance coverage creates a contract with the insurance company. You agree to timely pay your premiums and follow what the policy requires if a claim needs to be made. The insurance company, in turn, accepts your payment and agrees to reimburse you for your covered losses up to the coverage limits purchased. Both sides must act in good faith.
What is good faith? Insurance regulations in Pennsylvania require an insurance company to respond to a claim within set time periods; to thoroughly investigate the claim; and to pay the full value of a claim if it is required to do so. An insurance company that fails to do those things can be found in bad faith.
There are very serious consequences for an insurance company that does not treat its insureds fairly and in good faith. In addition to being made to pay the claim itself, a company that acts in bad faith can be required to pay its policyholder extra money to punish the insurance company and deter it from that conduct in the future (called punitive damages), as well as interest, court costs and attorneys’ fees.
For example, let’s say a policyholder, who we will call Mr. Smith, is injured in a crash with a drunken driver who only had $15,000.00 in liability insurance coverage (the state minimum). Mr. Smith is so seriously hurt that he will never be able to work again, cannot support his family, and is in risk of losing his home. Mr. Smith purchased underinsured motorist coverage on his own automobile insurance policy in the amount of $250,000, and paid the insurance premiums for that coverage for 10 years. This underinsured motorist coverage allows Mr. Smith to turn to his own insurance company to collect the remainder of losses and damages caused by the drunken driver who does not carry enough insurance. If Mr. Smith’s own insurance company delays paying on the claim for two, three or even four years when all the information shows that the claim should be paid, that can be bad faith.
Or, if a home or business owner suffers a fire and the insurance company delays paying the claim for several months or even years while the homeowner and his family are displaced or the business is unable to operate, that can be bad faith.
Why are the potential consequences for an insurer who acts in bad faith so severe? Insurance disputes often present a “David-versus-Goliath” situation. Insurance companies can be worth billions of dollars and can afford to hire an attorney and fight a valid claim for years. If an insurer was given merely a slap on the wrist when it treated its own policyholder in bad faith, that would encourage other insurance companies to do the same thing. In turn, that would completely destroy the “peace of mind” that those paying premiums expect when they purchase insurance coverage in the first place.
When an insurance company mistreats its own policyholder or drags its feet in paying on a legitimate claim, the insurance company is getting an “interest free loan” on money that should rightfully be paid to the policyholder. Holding the insurance company liable for the consequences of such mistreatment encourages insurance companies to treat their policyholders fairly and honestly so that in your time of greatest need, your losses will be covered.
Christine S. Lezinski has been an attorney with the law firm of Lenahan & Dempsey P.C. for the past 22 years. She focuses on representing plaintiffs in personal injury and insurance bad faith. Visit the firm’s website at www.lenahandempsey.com. This article is not intended to constitute legal advice. For specific legal advice, contact an attorney.