WHAT IS “BAD FAITH” AND HOW DOES IT AFFECT A CASE?Dec 1 2016
In the legal profession, “bad faith” is often used when referring to the insurance industry. But what exactly does it mean and how can it affect a particular case? In simple terms, “bad faith” refers to insurance fraud or an attempt to deceive, either by the insured person against the insurance company, or the insurance company towards the insured. This is a common occurrence within the industry, often because there can be different applications and interpretations, which ultimately affect outcomes.
When a legal professional is asked to represent either an insurance company or a policy holder, they are being tasked with doing double duty: they must act in good faith for both sides in order to ensure a fair, timely, responsible and transparent process. At the same time, a policy holder is also expected to act in good faith so that there is no obstruction of process or withholding of material evidence or information that would mislead the insurer.
The insurance company is always expected to bargain in good faith and to respect the terms of the agreement. While one would expect this to mean less litigation, fair settlements and fewer delays, it is not always the case. Bad faith, even if it’s merely suspected, increases litigation, reduces settlement payments and adds significantly to the time needed for a claim to be processed. Bad faith itself is usually represented through a number of scenarios. It can be the withholding of a payment or benefits coverage. It can also be the reduction of a settlement amount an unreasonable or lengthy delay to the actual proceedings.
For example, some insurance companies base settlement offers on case statistics, meaning there is an “average” payout depending upon a particular set of circumstances surrounding a specific kind of claim. An insurance company may decide to withhold a portion of a policy holder’s valid entitlement, calculating that the insured will accept, rather than face delay or the prospect of litigation. This can be acting in bad faith and the policy holder is left with two options: accept the lesser amount or proceed with legal action to recoup the remaining settlement portion.
Bad faith claims can be resolved with the assistance of a qualified legal professional to help settle, since they can be complex in nature and require a thorough understanding of the laws governing insurance and bad faith and how it can be both interpreted and applied.