An insurance company’s duty of good faith is not just a moral imperative – it’s a legal obligation. If your insurance company fails to act in good faith, you have options.
Until you file a claim, you may not think much about your insurance policy being a binding contract. Unfortunately, when the time comes for your insurer to uphold its contractual promises, you may get the runaround. Maybe your claim is outright denied or the insurance company fails to properly investigate. It might unreasonably deny payments, offer to pay less than what your claim is worth, or even misrepresent your rights under the policy. These are some of the ways insurers can act in “bad faith.”
Why Must Insurers Act in Good Faith?
In the early 1900’s, courts began to hold that contracts of all kinds contain an implied promise of good faith and fair dealing. South Dakota followed suit, with its Supreme Court announcing on many occasions that a covenant of good faith and fair dealing is implied in every contract, prohibiting either party from injuring the other party’s right to receive the agreed-upon benefits of a contract.
As applied to insurance policies, that means the insured and the insurance company each must act in good faith toward the other. Some insurers still act, though, as if they are free to deny claims and make their policyholders fight for any benefits due.
In 1969, the South Dakota Supreme Court joined courts throughout the country in holding that when insurers violate the duty of good faith, policyholders can sue for damages on “bad faith” claims. In situations of unreasonable behavior by an insurer toward its insured, bad faith claims entitle the insured to damages in addition to policy benefits that should have been paid in the first place. On top of compensatory damages for hardship and distress caused by the bad faith, the jury in a bad faith case may deliver a verdict against the insurer for punitive damages to punish and deter such bad conduct.
Why Do Insurance Companies Deny Claims?
Insurance companies generally are profit-driven entities. Besides income from premiums, they earn investment income on accumulated financial assets. They make more money if they refuse to pay claims and delay payments as long as possible. The biggest expense all insurers have is the cost of paying out policy benefits, so when a company wants to cut corners to improve its bottom line, they are tempted to rely on efforts to cut benefits payments. Some insurers give claims handlers and supervisors personal incentives to reduce benefits payments, even benefits paid to their own policyholders.
What Legal Options Do I Have?
If your insurance company has acted in bad faith when dealing with your claim, you can take legal action. In South Dakota, an insurance bad faith attorney must prove the insurance company knowingly acted unreasonably and the policyholder suffered harm as a result. The insurer’s duty of good faith includes a mandate to reasonably settle claims without dragging the policyholder to court. That does not mean the insurance company or insured can never litigate a claim dispute. It does require the parties to act in good faith in trying to come to a reasonable agreement without a lawsuit.
Turbak Law Office never works for insurance companies — only for insured people. To learn more about whether you may have been a victim of insurance bad faith, get in touch with Turbak Law Office for a free consultation at 866-231-0914.