Millions of people pay for insurance, believing that when a disaster happens, they will be covered. Unfortunately, this is not always the case. At Wisner Baum, our attorneys know all too well that insurance companies occasionally and unreasonably deny, delay, or undervalue claims without good cause.
Unreasonably denying or delaying a valid claim is unlawful and unethical, but it is even more egregious when there are catastrophic losses, such as after a wildfire. Too often, families who have lost everything are then faced with fighting to get the compensation they deserve.
This page will help readers understand their rights when it comes to insurance coverage, learn how to recognize if a company is acting in bad faith, and discover how to pursue a legal claim with the help of a bad faith insurance attorney.
What Is Bad Faith Insurance?
Bad faith insurance occurs when an insurance company violates its legal duty to act in good faith and fair dealing with its policyholders. In general, state law requires that insurers act reasonably when it comes to communications, investigating and processing claims, and acting in good faith to provide a fair and equitable settlement of a valid claim.
These duties apply to all types of insurance, from auto insurers to homeowners, as well as those covering businesses and properties. When an insurer acts in bad faith, it is not always immediately evident. It can occur any time the insurer intentionally denies, delays, or provides misrepresentations related to a valid claim without reasonable cause.
Common Examples of Insurance Bad Faith
An insurer acting in bad faith can take many forms. For instance, if the insurance company fails to respond to communication related to the claim within a reasonable amount of time, a court may find that they were acting in bad faith if the delay was intentional. Insurers may also use unethical tactics to try to pressure a policyholder into accepting a lower settlement offer or make misleading statements.
Examples of insurance bad faith:
- Delaying payment of a settlement
- Failing to respond to claim-related communications promptly
- Unreasonable denial of a claim
- Undervaluing a claim
- Making misrepresentations about policy terms or coverage limits
- Not conducting a proper, thorough, prompt investigation
- Using coercive tactics
- Pressuring a policyholder to take a lowball settlement offer
By law, you are entitled to a prompt, fair, and thorough investigation of your claim. When an insurer fails to provide this—or pressures you not to retain an attorney or misleads you about legal deadlines—it is considered bad faith.
Types of Bad Faith Insurance Claims
An insurance company can act in bad faith with any kind of policy, including auto, homeowners, health, life, or disability insurance. One of the most egregious examples of insurers acting in bad faith is when it is related to a catastrophic event, such as the California wildfires.
After recent wildfires, some insurers attempted (or continue to attempt) to deny coverage or downplay damage. Despite policyholders suffering total losses, insurers attempt to misrepresent pertinent facts related to claims or delay investigations.
First-Party vs. Third-Party Bad Faith
There are two types of bad faith claims, and the difference comes down to who the insurance company wronged.
First-Party Bad Faith
This is between you and your own insurance company. You paid your premiums, filed a legitimate claim, and your insurance company treats you unfairly.
After a wildfire, first-party bad faith might look like:
- Making material misrepresentations about the extent of your coverage
- Your insurer unreasonably delays investigating your destroyed home
- They lowball your claim, offering far less than your policy covers
- They deny your claim without a valid reason
- They refuse to explain why they're denying or reducing your payout
- They pressure you to accept a quick, inadequate settlement
Put more simply, you did everything right, and your own insurer is working against you instead of for you.
Third-Party Bad Faith
This involves someone else's insurance company, typically when you were harmed by their policyholder and file a claim against that person's liability coverage.
Why This Matters for Wildfire Victims
For most California wildfire survivors, first-party bad faith is the relevant issue. You are in dispute with the insurance company you have been paying for years; they are supposed to protect you when disaster strikes.
California law requires insurers to act in good faith and deal fairly with policyholders. When they do not live up to this, the policyholder may be entitled to compensation beyond their original claim, including damages for the stress the insurer’s bad behavior caused.
How to Sue an Insurance Company for Bad Faith
There are several steps a policyholder should follow to sue an insurance company for bad faith. It is important to act quickly, as claimants may only have a limited amount of time to take legal action.
Steps to sue an insurance company for acting in bad faith:
- Gather claim documentation: Prior to filing a lawsuit, you will need to gather information related to the claim. Any documents showing losses, communication, and policy coverage may be helpful and should be shared with an attorney.
- Consult with a bad-faith claim attorney: Bad-faith claim attorneys will provide an evaluation to determine what legal options you may have. In some cases, you may be able to appeal the denial of the claim or take legal action against the insurer for unethical conduct.
- File the complaint: With the evidence in hand, an attorney can then file a complaint citing the breach of duty and bad faith accusations.
- Discovery and negotiation: Once the lawsuit is filed, it may go through several phases, including discovery and negotiation. During this time, both parties may try to negotiate a fair and reasonable settlement.
Bad faith insurance claims can take time to resolve and should be handled by an experienced attorney. It is important to note that appealing the denial of a claim is not the same as filing a lawsuit based on the insurer acting in bad faith. A bad faith insurance lawsuit is filed when there is proof that the insurer failed to act in good faith when handling the claim; not all denials are based on bad faith.
What You Can Recover in a Bad Faith Lawsuit
Individuals filing bad-faith lawsuits may be entitled to damages. Damages may not only include the value of the claim but also attorney fees incurred to obtain your policy benefits (known as “Brandt fees”), subject to limitations under California law, and damages designed to compensate you for more specific losses. It is important to discuss your case with an attorney to determine what damages may be applicable in your case.
Types of damages you may recover in a bad faith lawsuit:
- Compensatory damages: Damages designed to compensate you for your out-of-pocket losses, such as the value of the claim.
- Consequential damages: Damages caused by the delay or denial of the claim, such as business-related losses, foreclosure, and emotional distress.
- Punitive damages: While difficult to obtain, punitive damages are a powerful remedy reserved for the most egregious cases in which a defendant acted with malice, oppression, or fraud. If an insurer's conduct is found to involve any of the aforementioned (for example, intentionally concealing evidence or conducting a sham investigation) a jury may award damages specifically designed to punish the company. These awards are in addition to your financial losses and are intended to deter future misconduct.
Why You Need a Bad Faith Insurance Attorney
For a policyholder, it can be difficult to know whether an insurance company acted with bad faith when denying or delaying a claim. The insurance claims process was designed to allow policyholders to handle their claims without the need for an attorney’s involvement; however, bad faith claims are lawsuits that are better handled by an experienced attorney. A bad faith insurance attorney can work to uncover the evidence necessary to prove wrongdoing, including subpoenaing internal emails and demonstrating a pattern of delays and/or misconduct.
Most insurance companies have robust legal departments with teams of seasoned attorneys at their disposal. Hiring a bad faith insurance lawyer helps to even the playing field, ensuring valid claims are heard and state laws are not violated without repercussion.
Furthermore, bad faith insurance lawyers accept cases on a contingency fee basis, meaning there are no upfront costs. It is important to contact an attorney as early in the process as possible. Taking prompt legal action helps to ensure that evidence is preserved and all legal deadlines are met.
Contact a Bad Faith Insurance Attorney
Individuals who believe that their insurance claim was denied or delayed due to bad faith are encouraged to contact Wisner Baum for a free legal consultation. Wisner Baum is a leader in the industry, having secured billions on behalf of victims nationwide. Contact Wisner Baum today at (310) 207-3233 to schedule a free, no-obligation case evaluation and help to hold insurers accountable for their misconduct.
FAQs About Bad Faith Insurance Attorneys
Q: Is it hard to win a bad-faith claim?
Bad faith insurance claims can be difficult to win, particularly without the help of an attorney. An attorney can obtain internal documents and other evidence to help prove wrongdoing. Without the help of a lawyer, it may be challenging to show that the denial was violative of state law.
Q: How much can I sue an insurance company for bad faith?
The first step to sue an insurance company for bad faith is to consult with an experienced attorney. An attorney can review the claim to determine whether there is sufficient evidence to file a lawsuit. It is imperative to provide all documents to the attorney, including proof of coverage, evidence of losses, and any insurance communications, to help substantiate the case.
Q: How long do bad faith lawsuits take?
Bad faith lawsuits take time to resolve. Some take several months while others take years to resolve. A bad faith insurance lawyer can provide an accurate timeline for the amount of time it may take to resolve the case based on individual circumstances.
Q: What is the difference between a denied claim and bad faith?
Insurance companies have the right to deny a claim if the denial is fair, reasonable, and in good faith. Not all denials rise to bad faith. A bad faith insurance claim occurs when an insurer intentionally denies or delays a valid claim. A denial in and of itself is not unlawful, and policyholders generally have the right to appeal a denial. However, a denial in bad faith is against the law.
Q: My insurance company has changed adjusters on me multiple times, and keeps asking for more time, is that bad faith?
Many policyholders find the insurance process daunting and time consuming after a mass disaster like a wildfire. Insurance companies are overwhelmed with claims and often use independent adjusters to help review claims and value losses and those people tend to only work on a claim for a short time. This type of tactic can rise to the level of bad faith if it results in an unreasonable delay or unfair claim handling. Insurance companies are allowed a reasonable time to investigate, but that cannot be used as an excuse to change explanations, delay coverage without a legitimate explanation, or otherwise frustrate the claims process.
