• (INSURANCE) BAD FAITH: Insurance is an agreement whereby parties give valuable consideration for protection from and indemnification against loss, damage, injury, or liability. Because they play such a critical role in our society, insurance companies are held to an especially high standard of conduct. When an insurance company does not act in accordance with these high standards, it is said to act in bad faith. The requirement that an insurance company must treat its insureds fairly applies to all types of insurance policies, including Life Insurance, Medical and Health Insurance, Automobile, Aircraft and Water Craft Insurance, Disability Insurance, Property and Casualty Insurance, Business Premises Insurance, Homeowners Insurance and Legal Liability Insurance.
  
  
• COMPENSATORY DAMAGES: Under established law, the policyholder is entitled to recover all damages incurred by the policyholder as a consequence of a breach of an insurance policy and these damages are called "compensatory damages." The damages recoverable for breach of contract are those that arise naturally from the breach, or those that were in the contemplation of the parties at the time the contract was made.
  
  
• CONSEQUENTIAL DAMAGES: Consequential damages for an insurance company's breach can include lost profits and damages for the loss of the business without regard to policy limits. The policyholder can recover consequential damages as a measure of contract damages entirely apart from policy limits and any punitive damages for the insurance company's bad faith.

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• DUTY TO ACT FAIRLY: The duty of good faith and fair dealing obligates the insurer to refrain from engaging in unfounded refusals to pay policy proceeds, causing a delay in making payment, deceiving the insured, and exercising any unfair advantage to pressure an insured into settlement of the insured's claim. In considering all coverage questions, the law requires the insurance company to give the policyholder the benefit of any reasonable doubt over coverage issues.
  
  
• EMOTIONAL DISTRESS DAMAGES: Insurance coverage provides the policy holder with the security that can only be provided by a large financial institution. When this protection is arbitrarily withdrawn for a bad faith reason, the anxiety and distress caused to the insured can be extreme. Under these circumstances, the law provides that the insured may be able to recover an award of monetary damages designed to reasonably compensate the insured for the emotional distress caused by the insurance company's bad faith conduct.
  
  
• FAILURE TO CONDUCT A REASONABLE INVESTIGATION: Before an insurance company can properly deny any type of claim, it must first conduct a reasonable investigation into the facts and circumstances of the case. This is typically done by an employee of the insurance company holding the job title of "claims adjuster." The claims adjuster may also work for a separate company that is hired for that purpose by the insurance company. Depending upon the outcome of the investigation by the claims adjuster, the insurance company will inform the insured that the claim is either covered, denied, or accepted under a reservation of rights. When an insurance company denies a claim without first conducting a reasonable investigation, it has engaged in a form of insurance bad faith.
  
  
• GOOD FAITH DEFINED: As servants of the public, insurance companies are held to the universally high standard of "good faith." Good faith is a legal term used to refer to conduct which is to be expected from an insurance company, which is required to have honest motives, to fully intend to perform its obligations under the terms of the policy, and to abstain from defrauding or taking unfair advantage of the insured. The duty of good faith requires the insurance company to give at least as much consideration to the insured's well being as it gives to its own. In this way, the duty of good faith is similar to a fiduciary duty.
  
  
• INSURANCE BAD FAITH DAMAGES: The legal damages that can be obtained in an Insurance Bad Faith case include the full value of the Policy Benefits and, if the insured has suffered other types of harm due to the denial of the claim, it may be possible to recover Consequential Damages or Emotional Distress Damages and, in an appropriate case, punitive damages.
  
  
• LIABILITY INSURANCE: Liability insurance is designed to provide insurance protection against the threat of a lawsuit. When a policy holder covered by a liability policy is sued, the insurance company is required to retain an attorney to defend the case, and pay any judgment covered by the policy. The duty of good faith and fair dealing fully applies to the conduct of an insurance company that has issued a liability policy.
  
  
• PATTERN OF BAD FAITH: An insurance company engages in a pattern of bad faith through the routine denial of legitimate claims, or the habitual failure to reasonably investigate claims. In such circumstances, the insurance company may be liable for punitive damages.
  
  
• POLICY LIMITS DEMAND: In a lawsuit seeking damages against a person with liability insurance when the damages are large and liability is clear, many plaintiffs' attorneys will make what is called a "policy limits demand." This is another way of saying that the plaintiff in the lawsuit is willing to settle the case against the insured for the full amount of whatever insurance coverage the defendant has covering the claim. If the case is settled on this basis, the defendant who has insurance is protected from incurring personal financial liability in the case. Under these circumstances, an insurance company has a duty to settle the case for the full policy limits because, if this does not happen, the insured may be exposed to personal financial liability if a larger verdict is rendered at trial of the case. When an insurance company unreasonably fails to accept a policy limits demand, it may later be held liable for all sums awarded at trial, even if the verdict is in excess of the insurance policy liability coverage limits.
  
  
• PUNITIVE DAMAGES: Punitive damages, or exemplary damages, are those that are designed to punish a defendant whose behavior in causing the plaintiff's injuries was especially egregious. Punitive damages are rarely awarded and are reserved for very serious misconduct.
  
  
• RESERVATION OF RIGHTS LETTER: When an insured under a liability policy is sued and tenders the claim to the insurance company, the company may issue what is called a "reservation of rights letter." This is another way of saying that the company is not certain whether it believes that it is legally obligated to provide a defense to the policy holder. An insured who is being sued and who receives such a letter from the insurance company is legally entitled to hire a private lawyer, in addition to the lawyer provided by the insurance company, to assist in the defense of the case, at the expense of the insurance company. This is justified by the fact that the insurance company has an economic incentive to steer the litigation in a direction away from coverage, to the detriment of the insured.
  
  
• STATE INSURANCE COMMISSIONER: Every state has a department of the government charged with supervising and regulating insurance companies doing business within the state. Insurance commissioners have the power to levy fines on insurance companies and take action to revoke the license required to do business within the state. However, while it may be helpful to make a complaint with a state insurance commissioner when dealing with insurance bad faith, as a general rule such state agencies are not designed to represent private citizens who have been subjected to unfair insurance company tactics.
  
  
• WRONGFUL DENIAL OF AN INSURANCE CLAIM: When an insurance company denies an insurance claim without a reasonable basis for doing so, it can be held liable for damages suffered by the policy holder. The type and amount of these damages depends upon the type of policy involved and the degree of misconduct by the insurance company.
  
  
• WRONGFUL REFUSAL TO DEFEND OR REASONABLY SETTLE: If the liability of the insured for a covered claim is covered under the policy, the insurance company also has a duty to provide an attorney at its expense to defend the case, and to make a reasonable effort to settle the case to protect the insured. When an insurance company unreasonably refuses to take action to protect its insured under a liability policy, it can be sued for damages. The damages that can be recovered in this type of case include not only the coverage limits of the liability policy, but also may include any amount awarded at trial against the insured in excess of the policy limits when a policy limits settlement demand has been made prior to trial.
  
  

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