The only thing that may be more painful than the injuries you suffered in a car accident is the pain of fighting with the insurance company to get the compensation they owe you.
The insurance company’s claims adjusters and attorneys are programmed to make sure you lose that fight, and they will go a long distance to be sure you do. This back-and-forth process, not always undertaken in good faith, is an extra burden on top of your injuries. It may be one of the best reasons to contact an attorney early in your claim process after an accident.
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How Do Insurance Companies Make Money
The first thing you need to understand is the business model for insurance companies. Most of them are profit-making corporations. To put it simply, they only make money if they pay out less in claims than they take in in premiums, and by holding onto those premium payments as long as possible by delaying a payout.
The exception is a mutual insurance company. It insures its members and policyholders at near cost and distributes profits to members and policyholders through dividends or reduced premiums. This structure doesn’t mean that they are incapable of acting in bad faith; they may have different motives for doing so than a for-profit insurance company.
As for the traditional for-profit insurance companies, they generate revenue in two ways. First, they take in the premium dollars that they receive for providing insurance coverage. Second, they reinvest those premiums into other revenue-generating assets. Combined, the premiums and the investment income pay for operating costs, claims, and profits. The idea is that the two income streams will exceed the costs and claims. If they do, the company makes money. If the costs and claims paid out exceed revenue taken in, the company loses money.
The claims dollars paid out need to be smaller than the revenue generated. In other words, insurance companies want to pay the smallest amount they can on every claim. Thus, the claims adjusters and lawyers negotiating your claim have strong motivations to pay you as little as possible.
In a similar vein, money has a time value. Insurance companies profit from delaying payments. The longer they make you wait for your money, the more likely you will settle for a smaller amount. At the same time, the money that they eventually have to pay to you, in whatever amount, continues to generate interest for them. This interest income may not seem like much on your claim, but add together hundreds of claims delayed for varying amounts of time, and the money can be significant.
Of course, sometimes, there’s a real reason to deny or delay paying your claim. But not always.
Reasons for Delaying Your Claim
- Legitimate Delays – There are legitimate reasons for delaying payment on a claim. For example, the law entitles the insurance company to investigate your claim. If the claim is complicated, this may take some time.
- Illegitimate Delays – On the other hand, there are reasons for unreasonably delaying a response to your claim that are not correct. Sometimes, it’s just poor operations and procedures at the insurance company that creates bottlenecks and delays in processing. Sometimes, delayed communications can do the same. At the same time, the company may misrepresent some aspect of your claim or policy in an active attempt to delay payment or proceedings or even encourage you to drop the claim or accept a lowball offer.
The difference between these two types of delays is that complicated investigations and incompetence are not desirable, but they also do not indicate bad faith. Misrepresentation and purposeful delays as a bullying settlement tactic are evidence of bad faith. And, as we’ll discuss more below, insurance companies must always treat claimants with the utmost good faith.
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Reasons for Denying Your Claim
As with delays, so with denials: there are good and bad faith reasons for denying a claim. The insurance company may deny your claim because you were partially or wholly at fault. The exact workings of this in each state depend on that state’s negligence rules. Likewise, if it is unclear who is liable, the company will deny the claim until you establish their policyholder’s clear liability.
Also, like delays, some denials violate the “good faith” requirements. For example, an insurance company may simply deny your claim on its face without diligently investigating the claim. You should receive a complete explanation for any claim denial.
Failing to give you that is a red flag of bad faith. As in delaying, the company may misrepresent policy provisions or facts about the case to support a denial of your claim. Or they may simply refuse to acknowledge your claim and take no steps to act upon receiving.
Their policies and procedures for claims processing may constitute bad faith. Failing to approve or deny for an unreasonable amount of time is another sign of bad faith, as is denying the claim with no reasonable explanation for the denial.
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Duty of Good Faith
The duty of utmost good faith is a legal doctrine that legally obligates contracting parties to act honestly with one another and not mislead or withhold information essential to the contract. In an insurance contract, the parties are the issuing insurance company, possibly the licensed agent or broker, the applicant, and the insured. A person seeking insurance is an applicant; once the policy is issued and they pay the initial premiums, the applicant becomes an insured.
Good faith requires the full and accurate disclosure of information.
- Representations – Both parties must honestly disclose all relevant and material information. For you, this means admitting if you smoke. For the company, this means accurately describing premiums, policy provisions, and coverage limitations. Information is considered material for this purpose. If the insurance company’s decision to issue a policy or yours to buy the policy relies on that information, it is material. A false statement of material information in an insurance application is a misrepresentation. If the insurance company makes material misrepresentations to an insured, that might be the basis for a bad faith claim. If an applicant knowingly makes a material misrepresentation, the insurer can void the contract.
- Concealment – If an applicant intentionally conceals a material fact from the insurer, the company can void the contract. If the company conceals a material fact about the contract from the insured, there may be a bad faith claim.
What Is a Bad Faith Denial
A bad faith denial happens when your insurance company denies your claim without a legitimate reason for doing so. For example, your insurance company denies your claim in bad faith when they don’t tell you why they denied the claim.
Another sign of bad faith is an unreasonable delay in paying a claim. Lowball offers accompanied by high pressure to accept the offer are also evidence of bad faith. Changing your policy or canceling it without proper notice or justification is also a sign of bad faith, especially if they respond to the existing claim as if you made it under the new policy provisions.
Proving a Bad Faith Denial
If you believe your insurance company, or the insurance company of the at-fault driver in your accident, has acted in bad faith, you might file an action against them for bad faith.
New York recognizes bad faith claims in insurance under the common law duty of good faith and fair dealing. New York insurance law also has penalties for unfair claim denials and settlement practices.
The prohibited practices include:
- Knowingly misrepresenting to claimants relevant facts or policy provisions about the coverage at issue
- Failing to acknowledge a claim reasonably promptly or communications regarding the same
- Failing to adopt and implement reasonable standards for prompt investigations
- Not attempt to settle promptly and in good faith
- Compelling policyholders to sue to recover amounts due to them through lowball offers
- Failing to disclose coverage promptly
- Submitting claims to the dispute resolution service, where they should not submit a claim
- Artificially deflating or lowering cost data used for adjusting claims
The number of complaints about this kind of conduct can be evidence of bad faith but can’t be the sole basis for finding a violation.
Violations are subject to financial penalties of up to $1,000 per offense.
New York recognizes bad faith claims by first parties, the insured, and third parties, if the insurance company fails to defend its insured or refuses to settle a claim for an amount within the policy limits that leads to a judgment against the insured for an amount over the policy limits.
The elements of a common-law case of third-party bad faith in insurance in New York are:
- Establish that the company acted with gross disregard of the interests of the insured, acting with a conscious indifference to the risk that the insured will be held personally liable
- Establish that the insured lost a legitimate opportunity to settle a claim within the policy limits when there was no doubt of the insured’s liability
- In determining the insurance company’s good faith, factors to be considered include:
- Proper investigation of the claim
- Timely negotiation or failure to negotiate at all
- Failure to foresee a verdict over the limits
- Failure to keep the insured apprised of settlement negotiations
- Attempts to obtain a contribution to the settlement from the insured
- Taking a bad faith financial risk which is much larger for the insured than the company
Under New York’s General Business Law, Plaintiffs can also claim a private right of action for deceptive business practices. Plaintiffs can seek to recover the greater of their actual damages or $50. The court may triple the damages up to $1,000 and order that the defendant pays the claimant’s attorney’s fees.
What Damages Can You Get for Bad Faith Denial?
In a case of bad faith claim denial in New York, you can obtain three kinds of damages:
- Contract Damages – These damages are the amount of the claim they denied plus interest at 10 percent per year.
- Extracontractual Damages – These are damages to compensate you for your economic losses, emotional distress, and attorney’s fee resulting from the claim denial.
- Economic and emotional distress damages include Any financial loss you sustained from the bad faith refusal to pay the claim.
- Money borrowed to pay medical bills (plus interest),
- Bankruptcy and its effect on your credit, and
- Any other financial losses caused by the denial are economic damages.
- Financial compensation for your pain, emotional suffering, anguish, worry, etc., suffered because of the denial or delay.
- Attorney’s fee incurred to provide the amounts due under the policy.
- Punitive Damages – a court may award this type of damages in cases where the insurance company’s conduct in denying or delaying the claim has been egregious.
Unlike many other states, New York’s consumer laws do not provide for treble damages in a bad faith insurance claim.
How Can a Bad Faith Insurance Claim Attorney Help
When you’ve been the victim of an accident, you’re already under physical and emotional stress. Trying to recover your physical and mental health while worrying about money going out by the bushel when little comes in can overwhelm you.
Adding the dilatory tactics of an insurance company acting in bad faith to that mix can feel devastating.
Don’t try to fight this battle on your own. Contact a skilled and experienced attorney for an initial consultation and case evaluation and let them take some of the stress load off you. We are skilled at dealing with the insurance companies, and know how to address bad faith tactics. Additionally, we can take your case to trial if the insurance company fails to negotiate fairly.