Insurance Company Bad Faith Following Car Accidents

Sometimes the worst aspect of a car accident will be trying to resolve a claim for property damage or injury with your own insurance company. An insurance company has a duty to deal fairly and in good faith with the people that it insures. When an insurance company violates that duty, the violation constitutes an act of bad faith.

What is Insurance Bad Faith

Insurance bad faith occurs when an insurance company willfully violates its legal duties to its insured client in order to avoid providing coverage or compensation due under their contract of insurance.

Possible examples of bad faith conduct by an insurance company include:

  • Refusing to provide defense to a lawsuit, even though the insurance contract requires the provision of defense services;
  • Refusing to pay a valid claim, or to offer fair value for the claim;
  • Deliberately confusing the insured about the coverage and terms of an insurance policy, or making an unreasonable interpretation of the policy, to cause the insured believe that coverage is not available;
  • Failure to perform an appropriate investigation before denying a claim;
  • Failing to make a reasonable settlement offer, putting the insured at risk of a verdict in excess of the insurance policy limits;
  • Misleading the insured about their responsibilities, such that the insured does not return required forms or meet deadlines, triggering a claim denial;
  • Unreasonable delays in processing and resolving a claim; and
  • Making threats of legal action against an insured in order to deter them from making a valid claim.

When the insurance company fails to act in good faith, the insured person may be able to bring a bad faith claim against the insurance company, seeking compensation for unreasonable delays in the investigation and resolution of a claim, the wrongful denial of a claim, or the failure to provide representation and an appropriate defense to an insured person who is faced with a covered claim.

In many states the insured may seek an additional award of punitive or exemplary damages, an award that serves to punish and make an example of a defendant for particularly bad conduct and may help deter future bad conduct.

Claims for Vehicle Damage

Auto insurance companies are notorious for making "lowball" settlement offers for cars that have been totaled in car accidents. They may impose unreasonable requirements upon a driver who attempts to negotiate a higher settlement figure, or delay payment until their insured is no longer able to hold out for more.

Personal Injury Claims

Within the context of personal injury litigation, sometimes an insurance company will attempt to avoid providing coverage to its insured by claiming that the accident was not covered by the policy. Sometimes the insurance company will refuse reasonable settlement offers from an injured plaintiff, sometimes ultimately subjecting their insured to a large jury verdict - perhaps in excess of insurance policy limits.

Uninsured and Underinsured Coverage Claims

When a driver is injured by an underinsured or uninsured driver, sometimes the driver's own auto insurance policy will contain a provision providing for compensation. Sometimes, even in cases involving clear liability on the part of the other driver or where the insured is severely injured, insurance carriers will deny that any payment is due or will offer an inadequate sum to "settle" the insured driver's claim.

"First Party" Claims for Bodily Injury

When you make a claim for coverage with your own insurance company, your claim is classified as a first party claim, because you are a party to the insurance contract. When you make a claim for compensation through an insurance company held by somebody else, such as the at-fault driver who causes a car accident, your claim is classified as a third party claim, because you are not a party to the insurance contract.

In states where drivers insure for their own medical care following an auto accident, sometimes insurance companies make it very difficult for accident victims to obtain the full range of benefits to which they are entitled by law or under the terms of their insurance policy, or wrongfully deny claims for benefits or reimbursement.

As insurance companies profit from the underpayment and wrongful denial of claims, they have an incentive to make things difficult for their customers. As insurance companies have vast resources with which to defend against lawsuits, and are very experienced with litigation, if you believe your insurance company is acting in bad faith it is a good idea to consult a lawyer experienced with bad faith claims.

How to Resolve a Coverage Dispute

When you and your insurance company disagree as to the validity or amount of a claim, you may consider the following options:

  • Negotiate - Express your dissatisfaction to the representative of your insurance company, most likely a claims adjuster. Explain why you believe the insurance company's determination is wrong or why their offer is inadequate. Assemble and provide documentation that you believe supports your claim. If you cannot work out an acceptable solution, you can ask to speak with their supervisor.

  • Contractual Remedies - Your insurance contract will outline a formal process for the resolution of disputes. Depending on the cost and complexity of that process, you may consider using the dispute resolution process.

  • Using an Independent Appraiser - An independent appraisal may be of value for a larger insurance claim, such as a claim for motor vehicle damage or following a house fire. The findings of an independent professional may help persuade the insurance company to increase its offer. However, the cost of appraisal must be considered before pursuing that option.

  • Arbitration and Mediation - The insurance company may be willing to participate in an arbitration or mediation of the dispute, and the insurance company may require a form of arbitration or mediation as part of the dispute resolution process. Keep in mind that the cost of these forms of dispute resolution can be significant.

  • Complain to the State Insurance Commissioner - Your state has an agency that oversees and regulates insurance companies, and you may submit a complaint to that agency if you believe that your insurance company is not fulfilling its legal duties.

  • Litigation - If all else fails, you may consider filing a lawsuit against the insurance company. If you believe that your insurance company is operating in bad faith it makes sense to consult a lawyer early in the process, as your lawyer may be able to help you try to resolve the claim without litigation and, when the insurance company is not fulfilling its duties, can help make sure that you build a good record and avoid making potentially harmful mistakes as you participate in negotiations or dispute resolution proceedings.

Insurance companies are very used to conflict, negotiation and litigation. If your dispute with an insurance company involves a significant amount of money, it makes sense to consult a lawyer who assists with insurance claims disputes about your situation and whether it may be helpful to be represented during negotiations or the dispute resolution process, and to obtain legal representation for any litigation against an insurance company.

Copyright © 2006 Aaron Larson, All rights reserved. No portion of this article may be reproduced without the express written permission of the copyright holder. If you use a quotation, excerpt or paraphrase of this article, except as otherwise authorized in writing by the author of the article you must cite this article as a source for your work and include a link back to the original article from any online materials that incorporate or are derived from the content of this article.

This article was last reviewed or amended on May 8, 2018.