Insurance Bad Faith
“What an insurance agent says is also a contract whether it is written in the contract or not. Even if it is just the agent’s interpretation. There could also be punitive damages involved in any lawsuit against an insurance company.”
When a small or medium sized company suffers a catastrophic business loss, such as a fire or hurricane, its bargaining power against its property and casualty insurer is virtually nil. Loss of inventory, for example, can result in death of the business if not replaced promptly and fairly. Insurance companies know this, and often take advantage.
Insurance Companies are NOT in the Business to Lose Money.
When a loss occurs, the language of the insurance contract becomes crucial. All insurance policies include an implied obligation which applies to the insurance company “of good and fair dealing” toward the policyholder. Look closely at the language of the policy. What type of losses does it cover? What property is covered exactly? What are the ancillary coverages that the policyholder can invoke that may be obscure such as valuable papers coverage? Most policyholders don’t know that, in most jurisdictions, the law construes the insurance contract most strictly against the insurance company who, after all, drafted the language, and in favor of the policyholder.
In reality, what an insurance company tells a policyholder is also a contract whether it is written in the contract or not. What an insurance agent says is also a contract whether it is written in the contract or not. Even if it is just the agent’s interpretation. There could also be punitive damages involved in any lawsuit against an insurance company.
Punitive damages may be involved in any lawsuit against an insurance company. For example, one of our cases involved an insurance company that refused to pay for damaged products for one of our clients following a major hurricane. The company couldn’t replace the product quickly enough and lost business. The insurance company claimed that the product was not covered, although it was implied. The insurance company was found to be reckless and punitive damages assessed.
Laws Hold Insurance Companies Responsible
In almost every state, insurance contracts, as well as most other contracts, include an implied duty of good faith and fair dealing. This is often interpreted to mean that the insurance company, when faced with an ambiguous choice between its own interests and that of its policyholder, must favor the policyholder. Breach of the duty of good faith can result in liability for not only the damages covered under the policy, but for consequential damages – damages caused by the delay in, or refusal of, payment, over and above those covered by the policy, and punitive damages. In one recent case, an insurance company refused to pay for a client’s damaged product. The company couldn’t afford to buy more product and lost business. In cases like this involving reckless misconduct by an insurance company, the insured may also be entitled to punitive damages.
Partner Ken Suggs has handled numerous insurance bad faith cases, and has lectured on the topic in many legal education programs.
