What is Bad Faith Insurance?

For auto insurance, this typically means providing payout for damages, such as personal injury or property damage, covered by the policy. When the insurer refuses to settle a claim within policy limits in a timely manner exposing the insured to additional liability, an instance of bad faith occurs and the insurer is entitled to file a lawsuit against the insurer for a range variety of damages.

Whether you have a bad faith claim against an auto, home, business, or other type of insurance company, Avrek Law Firm, can help. Avrek Law Firm, has a strong track record of advocating for insurance fraud victims, including a $6 million settlement obtained for an injured party who did not receive a timely payout. To discuss the details of your case for free, contact us today at 1.866-598-5548 or online.

To begin with, it’s important to understand that a denial of insurance benefits does not necessarily mean that insurance bad faith has occurred. If a loss is not covered by a policy, the insurer is not obligated to pay. Insurers do have limited discretion in settling the claims of the insured. Bad faith only comes into play when there is “unreasonable” and “unfair” insurer conduct. Although “unreasonable” is somewhat subjective, it is usually held to include the following insurer actions:

  • Deny a legitimate claim
  • Delay in processing a claim
  • Underpayment
  • Policy cancellation following a claim
  • Failure to defend an insured in a lawsuit

California law specifies that an insurer violates its good faith duty “by refusing, without proper cause, to compensate its insured for a loss covered by the policy.” Any such breach is actionable by law.

Possible Damages From a Bad Faith Lawsuit

Perceived bad faith insurance may in fact only be a breach of contract. This is one of the first things that an Avrek Law Firm, attorney will consider when reviewing your case.

The difference between breach of contract and insurance bad faith is significant in terms of awardable damages. For a breach of contract, it is usually only the amount of a proper claim under the insurance policy that is recoverable. Successfully proving insurance bad faith, however, can result in a much larger reward, including

  • The amount that should have been paid under the original claim;
  • All damages (i.e. economic loss or psychological harm) caused by the improper claim denial;
  • Attorney fees
  • Punitive damages

Examples of Bad Faith Insurance

Third Party Claims

In an auto accident case, bad faith most often is an issue when you (the driver) causes an accident and is liable for damages to another party. For example, if you run a red light and strike another vehicle, resulting in property damage and bodily injury, your insurance policy should cover these losses. If the insurance company exposes you to additional liability by refusing to settle the case, providing inadequate compensation, or taking another unreasonable action, you may be eligible to file a lawsuit against the insurer.

First Party Claims

A first party claim is a claim made on your own policy. This might occur if your car is stolen (i.e. comprehensive coverage) or you veer off the road and strike a tree (collision coverage). If your insurance company fails to pay death benefits, disability benefits or even credit card protection when you have a valid policy there could be a bad faith. Again, eligibility is subject to insurance policy terms.

A first party insurance claim might also arise if you are injured by another driver who is underinsured or uninsured. Your eligibility for underinsured or uninsured driver insurance depends on your individual policy. But if you are eligible and are denied benefits, it could be grounds for an insurance bad faith lawsuit.

Get Help With a Bad Faith Insurance Claim

When insurers act in bad faith to the insured it often makes a bad situation even worse. You pay for insurance to protect you during vulnerable times, and the law protects you from insurance companies that put their own interests before your own. If your claim was denied, underpaid, or delayed, Avrek Law Firm, can help set things right. We’ve recovered millions of dollars on behalf of clients whose insurers acted in bad faith. Contact us today for a free initial case review.


Maryam Parman, Avrek Law