Car Insurance Companies and Bad Faith Practices

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British comedy troupe Monty Python had one sketch in which someone was told to buy an insurance policy that was reasonably priced, but which would never pay out: it was described as a wonderful policy so long as you don’t make any claims. Sometimes it feels like all insurers operate under that principal, and particularly so with car insurance.

A car accident is one of the most common situations in which someone may make an insurance claim. There are 300 million people in the United States, and 6 million car accidents per year. Even if each accident were a single-car accident, one driver, no passengers, that still means a 2% chance per year of being involved in an accident.

How Car Insurers Act in Bad Faith: Reducing or Delaying Claim Payments

Insurers use several tactics to reduce and/or delay paying claims.

  • Often, what insurers do is as simple as stonewalling or delaying the claim for as long as possible, in the hopes that the claimant will give up or settle for less.
  • A second common tactic is to simply deny that the liable—or responsible—party is in fact liable. It is one thing to raise a good-faith defense, if the insurer truly believes that liability is in question; it’s another thing to deny what should be undeniable, trying to wear down the claimant.
  • A third common tactic is to lowball the amount of damages or the cost to repair. This is very common when claiming for auto damage. For example, if an insurer is arranging repairs to your car, it may try to get away with paying less than it takes to actually repair the damage.

Filing a Lawsuit for Bad Faith Practices

Fortunately, insurers are subject to a duty to act in good faith. This arises out of the duty to act in good faith in regards to any contract—and an insurance policy is a contract. This general duty is often further reinforced and strengthened by laws relating specifically to insurance.

If an insurer is acting in bad faith, such as by unreasonably or arbitrarily refusing to pay a clearly valid claim, it’s possible to bring a bad faith lawsuit against the company. What’s more, if an insurer violates its duty of good faith, it may be opening itself up for liability beyond its policy limits. In one Los Angeles case, for example, an insurer which should only have been liable for $15,000 (based on policy limits) ended up paying 67,500 (four-and-a-half times as much) because of its bad faith.

How a Lawyer Can Help you

Given how much is at stake, the importance of knowing your state’s insurance laws and precedents (or prior cases), and the need for experience in applying the admittedly subjective standard of “good faith,” if you ever find yourself in the unfortunate position of having to fight an insurance company for what’s rightfully yours, you need “bad faith attorneys” looking out for your interests. Having experienced counsel on your side—lawyers who know the law, the courts, and also how to negotiate—can mean the difference between getting what you deserve or not.