The law holds insurance companies to a certain standard of behavior. When such a company’s conduct does not live up to this standard, it is coined “bad faith practice”. There are various types of conduct against an insured party that constitute bad faith. For example, it is considered bad-faith practice if the insurer:
- Neglects to fully investigate a policyholder’s claim,
- Refuses to pay for damages or excessively delays payment,
- Offers to compensate for less than the actual value of damages or
- Fails to provide all available policy information that could benefit the policyholder.
In bad-faith insurance lawsuits, a plaintiff can stand to gain substantially, because the law allows for an insurance company acting wrongfully to be held liable for both compensatory and punitive damages.
Any money that is awarded to pay for damage, injury or loss resulting from bad-faith practice is referred to as compensatory damage. There are three types of compensatory damages in Oklahoma:
- Financial loss
- Loss of reputation/embarrassment
- Emotional suffering
Compensatory damages typically approximate the value of the claimed loss.
Punitive damages, on the other hand, refer to payment a bad-faith insurer must pay as a penalty for their improper conduct—over and above the cost of compensation. Punitive damages in a bad-faith insurance lawsuit can be significantly higher than compensatory damages. For instance, in a recent bad-faith disability insurance lawsuit, the jury awarded the plaintiff $6.5 million in damages, and $5 million of that was punitive. Thus, punitive damages have to potential to add considerably to a claimant’s award.