Bad faith insurance attorney Marc Gravely explains bad faith in detail and offers an overview of legal options for policyholders who have had their claims denied.
We’ve handled thousands of insurance cases and thousands of bad faith cases, and I’m asked all the time, “What is bad faith?”
The start of the analysis is to know that an insurance carrier owes a duty of good faith and fair dealing to any of its policyholders. I think it’s easiest to start by examining what the duty of good faith and fair dealing means in the context of the insurance process. Just know that there are several guideposts to help us analyze whether or not an insurance company’s conduct constitutes bad faith. There’s some things to remember.
One is an insurance company has exclusive control over the evaluation process and the denial or payment of claims. The insurance company is the one who’s in control of the claims process and the denial or payment of whatever your loss may be.
A lot of folks don’t know this, but an insurance company must treat its policyholder’s interests with equal regard as it does its own interests. That’s another guidepost we have in defining whether or not an insurance company has committed an act of bad faith.
Another important point to remember is part of an insurance adjuster’s job is to assist the policyholder with the loss. It is literally their job to assist you, to explain the policy to you, to help you know what benefits are due under the policy, and to honestly answer any questions you’ve got.
Another important point to remember is that an insurance company has an obligation to conduct a full, fair, and prompt investigation of the loss at its own expense. What that means is that they can’t ask you to go out and hire an engineer, or they can’t ask you to adjust your own claim. That’s against the law.
In addition to that, an insurance company must have a reasonable basis for resolving fact issues in its favor against its insurer. What that means is they have to have a factual basis or a legitimate reason to resolve a fact in their favor and against the policyholder.
Another guidepost we use is that an insurance company must diligently search for and consider evidence that supports the loss. It’s up to them, in their duty of good faith and fair dealing, to be diligent in their search for and consider evidence that supports the policyholder’s viewpoint.
Another guidepost is that the insurance company can’t make intentionally low claim payments. This is one of the more obvious ones that I think a lot of folks have experienced. An insurance company is not free to intentionally lowball a payment and hope that the policyholder just accepts that.
It’s also an act of bad faith for an insurance company to intentionally ignore or to under scope damage. That’s what we see quite often, is an insurance company intentionally under scopes what the real loss is.
With those guideposts in mind, some specific examples we’ve encountered over the years that do constitute bad faith include refusing to investigate parts of the loss of the damaged property after being specifically notified of damage. Sometimes the insurance company just refuses to do an evaluation of an obviously covered loss.
Another act of bad faith would be removing or reducing the amounts of the scope of the estimate with no reasonable explanation. They have to give an explanation of why they’ve removed or reduced amounts in their initial estimate.
Another clear sign of bad faith is ignoring test or professional opinions that bear on the scope and the amount of the covered loss. Insurance companies like to hire experts, and they like to hire the same experts all the time, but they’re not free to ignore the professional opinions that help them decide whether or not a loss is covered, or the scope of the loss.
Another obvious act of bad faith is retaining an investigator with an expectation that the investigator provides a biased or undervalued scope of loss, so when an insurance company hires the same experts time and again, the experts routinely under scope the loss to the benefit of the insurance company.
Another clear sign of bad faith is misrepresenting the coverage or the facts about the loss. This goes back to something I mentioned earlier. An insurance adjuster is supposed to help a policyholder know what their coverage is or to understand their coverage documents. Misrepresenting the coverage or facts about the loss is not something that’s okay. As a matter of fact, it’s more than not okay; it is a sure sign of bad faith.
Another sure sign of bad faith is an insurance company failing to or not conducting an additional investigation or testing after knowing it’s reasonably necessary – for example, refusing to hire an engineer under circumstances where an engineer’s opinion is necessary, or refusing to authorize testing requested by an engineer or an independent adjuster when the testing is obviously or reasonably necessary.
Another obvious bad faith point that we see arise from time to time is knowingly omitting covered damage from the amount of the loss.
Another obvious act of bad faith is omitting overhead and profit when it’s obvious that a general contractor is going to be needed to repair the covered loss.
Another obvious act of bad faith that we see from insurance carriers on property damage is applying an unreasonably steep depreciation arbitrarily, without any basis in fact.
Another easy-to-spot bad faith point is applying depreciation to those aspects of a coverage determination that are not depreciable – for example, labor is simply not depreciable, nor is overhead and profit.
Finally, the last obvious act of bad faith that we see quite often is denying a covered claim or covered loss based on facts that a reasonable investigation would’ve shown to be false. What that means is that the insurance adjuster is duty-bound under the duty of good faith and fair dealing to do a reasonable investigation and to look into what the real facts are.
At Gravely, we’ll review your facts of your loss at no cost. We’ll take a look at what your facts are, we’ll take a look at your policy, and help you to better understand whether or not you’ve been treated in bad faith. You can call us or go to our website and fill out our form there, and let us know. We’re happy to help you and take a look at whether or not you’ve been the victim of bad faith.