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Accusations of bad faith conduct can be serious for insurers

The term bad faith can be applied on either side of the insurance claims process. First, a policy holder can make a bad faith claim -- claiming damages that aren't really there or weren't caused by the events as stated in a claim. Second, an insurance company can practice bad faith by not providing payment appropriately and in a timely manner on a good claim or by treating policy holders with business neglect.

Allegations of insurer bad faith can be extremely bad for business. Not only is it negative for the brand, it can also lead to expensive legal woes. In some cases, courts have been known to allow juries to award excess damages -- above policy limits -- to plaintiffs who sue after insurance companies fail to settle in what is deemed a "good faith" effort in a case. In these situations, the accusation of bad faith can end up costing millions of dollars, where as a settlement would have cost hundreds of thousands or less.

One distressing note for insurance companies is that a successful bad faith claim on the part of the policy holder doesn't necessarily need to prove that the insurer engaged in purposeful wrongdoing or unjustifiable conduct. Depending on the laws of the state, the plaintiff might be able to win a bad faith case simply by showing unintentional negligence -- which could occur if they are able to show a reasonable set of facts did exist that should have caused the claim to be paid.

This creates a fine line for insurers. Some claims are not fully legitimate under a policy, but insurers must take care when denying claims that they don't inadvertently create a bad faith possibility. Working with an experienced lawyer to review such cases can help you avoid issues, and if you are faced with a bad faith accusation, an attorney can be critical to minimizing exposure for your bottom line and brand.

Source: Claims Journal, "Essentials: What Every Claim Adjuster Should Know About Bad Faith," accessed Nov. 25, 2016

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