Can policyholders sue an insurance company for bad faith over the extent of coverage?
Generally, they shouldn’t be able to.
However, a recent decision demonstrates how an insurance company can still be held liable for bad faith over long durations of negotiations and stalling in the claim and payment process – even after it has voluntarily paid nearly all of what it owes the policyholder.
What Gives Rise to Bad Faith?
As we have discussed in a previous post, bad faith happens when your insurance company provides inauspicious responses to your claims. To brush up on our insurance bad faith knowledge, unfavorable responses to claims may include:
- Failure to conduct a proper investigation
- Unreasonably denying a valid claim
- Providing an unrealistically low settlement amount
- Rescinding (cancelling) your policy after you made a claim
- Delaying the claiming process unreasonably
Some laws require insurance companies that act in bad faith to pay basic damage to the victim for having a claim denied. Given that the claim has been investigated properly and handled immediately, bad faith typically shouldn’t be part of the picture.
In some cases, it doesn’t suffice that an insurance company pays out compensation that covers compensation that addresses the damage. If the jury finds that the claim had been investigated poorly, or that the insurance company has failed to explain the process and its calculation of payments as well as complete payments in a timely manner; it may still be liable for bad faith.
Case in Point: Charter Properties, Inc. v. Rockford Mutual Insurance Co.
Szechwan Gardens was a restaurant operating within a rented Charter Properties-owned building. The building collapsed, causing Szechwan Gardens to be out of business for almost 49 weeks. Charter Properties’ insurance provider, Rockford Mutual Insurance Co., stipulated that the policies covered the collapse, but disagreement arose over the amount of the loss and lost rental income.
Rockford paid about $1.1 million to Charter Properties, but the latter sued, alleging that the actual losses were higher by about $600,000. While a jury agreed that the costs were indeed higher, but just by about $150,000. Rockford paid the rest of the amount awarded by the jury.
Almost six years after the loss, a separate trial was held on Charter Properties’ bad faith relief claim. This was because the plaintiff claims that it encountered unnecessary difficulties as Rockford withheld policy benefits. Rockford was said to delay and fail to complete its investigation, provide the policyholder with a loss calculation, and even unnecessarily delay the payments.
The court agreed Rockford’s stalling tactics, long negotiation duration, and delayed payments were unreasonable and vexatious conduct. This was after the insurance company has voluntarily paid almost 90% of what it owed.
The case teaches an important lesson: policyholders are entitled not only to fair payment but also to be paid promptly and given timely communication and investigation by the insurance company.
Is Your Insurance Company Acting in Bad Faith?
When your insurance company refuses to act in good faith, seek help from Haffner Law. Our seasoned bad faith insurance attorney based in Los Angeles will help you recover the full value of what you are owed.
Contact us at 213-514-5681 today or fill out the form below to receive a free, no-obligation case review.