Holding Insurance Companies Accountable For Acting In Bad Faith
When we make a deal, purchase a product, or sign a contract, we expect the other side to be acting in “good faith.” Simply put, this means we expect the other side to be acting honestly and with good intent. Many times the other side does just that. But some of the time the other side refuses to follow through with their side of the deal. In these cases, the other side may be acting in “bad faith.” In the state of Colorado, and in many states around the nation, insurance companies are barred from acting in bad faith towards their customers. If they do so, a customer may sue them for bad faith breach of an insurance contract. If you feel you have been a victim of insurance bad faith, you should call an insurance bad faith attorney at Cheney Galluzzi & Howard.
What Is Insurance Bad Faith?
To begin, we must understand when insurance bad faith applies. It only applies in what are called “first-party” cases. This means anytime you are the one paying for the insurance. For example, if you pay for homeowners insurance, then you have a first-party relationship with the insurance company. On the other hand, if John Doe hits you with his car and you file a claim against his insurance company, you are a third-party claimant and the bad faith rules do not apply.
Insurance bad faith, originally, was a common-law idea executed by the courts. This means that there was never any formal law on the matter, but rather the courts had adopted policies over the years that allowed insurance companies to be punished more harshly if they acted in bad faith. In Colorado, this required the customer to prove that (1) the insurance company acted unreasonably in its settlement of a claim and (2) the insurance company knew its conduct was unreasonable or it recklessly disregarded the fact that the conduct was unreasonable. As you can imagine, proving the second prong was difficult, but if you succeeded the courts could award not only the amount of money the insurance company was supposed to pay but also additional money for pain and suffering, inconvenience, fear, and anxiety.
Wanting to take a proactive approach and protect consumers, Colorado passed a law in 2008 which clarified and broadened insurance bad faith laws. Now, a consumer need only prove that the insurance company unreasonably delayed the settlement of a claim instead of having to also prove the insurance company knew it was unreasonable. The legislature also clarified the penalty for such behavior, using what are called “treble damages.” Put simply, if an insurance company owes you $1,000.00 and it unreasonably refuses to pay you, the insurance company will now owe you $1,000 for the claim plus a $2,000.00 penalty (double the original amount). The insurance company will also have to pay all of your attorney fees which can run tens of thousands of dollars.
It is hard to predict exactly what actions meet the definition of bad faith and, ultimately, those are up to the jury. But some examples the Colorado legislature acknowledge are (1) refusing to pay claims without conducting a reasonable investigation, (2) failing to acknowledge and respond reasonably quickly to communications, (3) delaying a claim by demanding a customer provide information the customer has already provided, or (4) failing to provide a reasonable explanation for why a claim is being denied.