5 Things Insurers Need to Know About Avoiding Bad Faith

Posted by Andrew on August 19, 2019

No legitimate insurance adjuster sets out to commit misconduct that could constitute bad faith. However, the expenses associated with bad faith lawsuits and the upswing in legal action are strong indicators that insurers need to reconsider the economic implications of bad faith for their company. Knowing what constitutes bad faith and how to avoid it can save legal headaches and a significant amount of money.

Understanding Bad Faith

Every state has its own set of laws governing the minutia of bad faith lawsuits. However, the majority of states define bad faith as a combination of negligence and deliberate misconduct. Most states determine if negligence occurred using a simple and objective analysis to determine if the insurance provider behaved in a way that was unreasonable toward the customer.

The second element of bad faith is establishing whether the company behaved unreasonably on purpose. It’s important to note that negligence alone is not enough to establish bad faith. Accidents happen and employees can make mistakes unwittingly.

5 Practices that Can Result in Bad Faith Claims

The following are examples of behaviors that can result in bad faith lawsuits. Insurance providers need to take all possible steps to ensure these behaviors do not occur to avoid costly litigation:

  1. Delaying, disregarding, or denying payment without a reasonable basis for doing so
  2. Failing to reply within a reasonable time frame to a notice regarding a new covered claim
  3. Neglecting to perform a swift, unbiased, and realistic assessment of damages and rightful settlements to insured within a reasonable period, especially when liability is clear
  4. Attempting to offer a settlement far less than what a reasonable person would believe is acceptable or attempting to undercut a claim’s severity, forcing the insured to file a lawsuit
  5. Requiring the insured to provide a burdensome amount of documentation that their policy doesn’t require

Again, none of the above can constitute bath faith on their own basis without the insurer intentionally doing so. However, the behaviors are enough to initiate a lawsuit regardless, and it’s better to avoid going to court whenever possible.

Acting in good faith should be a guiding principle for all insurers and having a solid claims management system in place can help achieve that goal. Contact the experts at Actec to learn how we can simplify and improve your claims management processes.