What are the elements of insurance bad faith?

Bad faith occurs when one party of a legal contract acts dishonestly to avoid fulfilling his or her contractual obligation. Bad faith may also occur when one party enters a legally binding agreement without any intention or the means to fulfill it. California, like most other states, recognizes an "implied covenant of good faith and fair dealing," which means that a party injured by the bad faith dealings of another may sue the offending parties for damages that result from the bad faith actions. Many parties across many industries are guilty of bad faith, but those within the insurance industry are particularly notorious for bad faith dealings.

According to FindLaw, insurance agencies are bound by common law torts theory, which states that insurance providers owe their policyholders a duty to act in good faith and fair dealings given the special nature of their relationship. FindLaw further details two elements you, if you hope to win a common law claim of bad faith, must prove.  

First, you must prove that the insurance provider withheld the benefits owed to you under the policy. To do this, you need to establish that you filed a valid claim given the wording of your policy. You must also show that your insurer denied your claim despite its validity.

Second, you must show that the reason for the insurer's denial was unreasonable. The evaluation of reasonability is objective and based entirely on the facts of the situation your insurer was privy to at the time it made the decision in question.

If you can prove these above two elements, you may have a case of insurance bad faith.

The content shared here is not meant to serve as legal advice. It is for educational purposes only.

 

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