INSURANCE BAD FAITH and PUNITIVE DAMAGES: KNOW YOUR RIGHTS

Punitive damages based on Insurance Bad Faith: Brought to You by Our Staff of Personal Injury Lawyers and Insurance Bad Faith Attorneys at DOWNTOWNLALAW.COM

Insurance bad Faith is a tort claim against an Insurance Company that has failed because of bad faith in meeting its fiduciary duties to the insured person or business.   Under United States law an insurance company owes person covered an “implied covenant of good faith and fair dealing”.  Under this law an Insurance company can be sued for both a contract claim and a tort claim.  Under a contract claim plaintiff will receive only those damages suffered; while under the tort claim most U.S. jurisdictions allow for the issuance of Punitive Damages. 

Punitive damages are given because Insurance companies are required to pay claims properly and promptly in “Good Faith”.   When insurance companies deny full payment, low ball, discount, pay late, or attempt to not pay out claim at all based on Bad Faith, plaintiffs are able to seek a tort claim against insurance companies.  This allows for the issuance of Punitive Damages by the plaintiff (usually the insured party) against the insurance company.

What Standards do Insurance Companies have to comply with?

The acts of the employees of insurance companies are impugned to the Insurance company itself.  California Insurance Code Section 790.03 places standards that must be followed by Insurance companies in dealing with insurance claims; failure to comply with these standards will subject insurance companied to Tort Claim and thus Punitive damages.  Some of the standards are listed below.

·         Misrepresenting to claimants pertinent facts or insurance policy provisions relating to any coverages at issue.

·         Failing to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies.

·         Failing to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under insurance policies.

·          Failing to affirm or deny coverage of claims within a reasonable time after proof of loss requirements have been completed and submitted by the insured.

·         Not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear.

·          Attempting to settle a claim by an insured for less than the amount to which a reasonable man would have believed he was entitled by reference to written or printed advertising material accompanying or made part of an application.

·         Failing, after payment of a claim, to inform insureds or beneficiaries, upon request by them, of the coverage under which payment has been made.

·         Making known to insureds or claimants a practice of the insurer of appealing from arbitration awards in favor of insureds or claimants for the purpose of compelling them to accept settlements or compromises less than the amount awarded in arbitration.

·         Failing to settle claims promptly, where liability has become apparent, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage.

·         Directly advising a claimant not to obtain the services of an attorney.

·         Misleading a claimant as to the applicable statute of limitations.

What are Punitive Damages?

Punitive damages are awarded by a jury or a court when the plaintiff has proven to the court that an insurance company has acted in bad faith.  If proven the Insurance company may be liable for punitive damages. 

The purpose of Punitive damages is to discourage Insurance Companies from acting in Bad Faith in future matters with its policy holder or third party claimants.  Its purpose is to change the conduct of the defendant Insurance Company.  In doing so the amount awarded be excess of the actual damages sustained by a plaintiff.

Punitive damages are not given in contract claims.  As a result United States law has allowed for plaintiff in Insurance bad faith cases to seek a claim under a Torts Action.  This means that a plaintiff can seek punitive damages against an insurance company that has acted in bad faith in excess of the actual damages sustained. 

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