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What are the elements of an insurance bad faith claim?

On Behalf of | Feb 16, 2021 | Insurance

It can be overwhelming to be facing significant medical bills and have an insurance claim denied. That does not have to be the end of the story, however, which is why insureds who find themselves in the position of having a claim denied should be familiar with what is included as part of an insurance bad faith claim.

A bad faith insurance claim can be based on common law or may be based on a statutory claim.

Bad faith common law claim

A bad faith common law claim includes the following elements:

  • The benefits due to the insured under their insurance policy were withheld. The insured making the claim must demonstrate that they have a valid claim according to their insurance policy and that claim was denied by their insurer.
  • The reason for withholding the benefits and denying the claim was unreasonable. Whether or not the insurance company acted reasonably is objectively evaluated based on the facts and circumstances as they existed at the time the decision was made. Typically, the insurance company must have been more than negligent to demonstrate that the denial was made in bad faith.

Bad faith statutory claim

A bad faith statutory claim includes the following elements:

  • The insured was compelled to pursue litigation to recover amounts due under their insurance policy;
  • The insurance company failed to provide a reasonable explanation for the basis of the denial of the claim or offer a compromise settlement;
  • The insurance company failed to promptly, fairly and equitably settle the claim when liability for the claim was reasonably clear;
  • The insurance company refused to pay the insurance claim without conducting a reasonable investigation into the claim; and
  • The insurance company failed to implement reasonable standards for investigation of the claim.

Insurance companies generally have an obligation of good faith in every insurance policy because they are commonly in a more powerful position than the insured when a claim has been made. When an insurance company has denied a claim, if they have been unreasonable in processing, investigating and denying a claim, they may be liable for insurance bad faith. For that reason, it is important for insureds who believe they have had their claim unreasonably denied to be familiar with their legal rights and the help that may be available to them.