Insurance companies owe certain duties to their policyholders. These include not unreasonably delaying or denying benefits due to a policyholder, and making reasonable attempts to resolve claims against a policyholder. When they breach these duties, it can give rise to claims for insurance bad faith. However, it may not be clear if an insurance company’s conduct has crossed the line, and you may need to hire a personal injury attorney to help determine if you may be able to pursue a claim for insurance bad faith.
What is insurance bad faith?
When you purchase an insurance policy, you’re making a contract with the insurance company for it to provide benefits in exchange for the premiums you’re paying. However, when it comes time to pay a claim, the insurance company may try to pay less than what is reasonably due, or even nothing at all. If the insurance company’s conduct is particularly unreasonable, and there is no legitimate explanation for its conduct, it may constitute actionable bad faith.
However, a dispute about the amount of benefits due does not by itself constitute bad faith. The distinction between a reasonable dispute and an unreasonable dispute often depends on whether there is a reasonable basis for the insurance company’s conduct. If the insurance company is unable to explain the reason for its delay or denial of benefits, it might not have a reasonable basis for its conduct. A skilled personal injury attorney can communicate with the insurance company on your behalf to determine if there is a reasonable basis for its conduct.
Who can make a claim for insurance bad faith?
Insurance companies generally owe duties only to their own policyholders. If you have been injured in a motor vehicle collision and the other driver’s insurance company is being unreasonable, you generally cannot make a claim against it for bad faith. Rather, insurance bad faith claims for personal injuries generally exist in two particular types of situations:
- if you or a relative you reside with carry uninsured/under-insured motorist coverage on your motor vehicle insurance policy, and you have been injured by a driver without insurance, or with inadequate insurance, you may be entitled to benefits under your own insurance policy. If the insurance company delays providing the benefits even after receiving documentation of your damages, or outright refuses to pay, then you may have a claim for insurance bad faith. This is called “first party” insurance bad faith, as it involves claim against your own insurance company. In this situation, there may be claims based both on Colorado statute and in common law that can be asserted against your insurance company; and
- if a driver is at fault for causing a motor vehicle collision, and carries bodily injury liability coverage, that driver’s insurance company generally owes a duty to him or her to make reasonable attempts to settle the claim within his or her policy limit, and to not place its interests above those of the at fault driver. This duty can be implicated in a situation where the at fault driver had a low policy limit, the collision caused serious injuries, and the insurance company declined an offer by the injured party to settle within the available policy limit. If the insurance company refuses to make a reasonable settlement offer, and an injured party subsequently sues the at fault driver and obtains a large judgment against him or her, the insurance company may be liable to the at fault driver for the judgment. This is called “third party” insurance bad faith. In these cases, it may be possible for an injured party to make an agreement with the at fault driver that allows the injured party to pursue and recover damages for the at fault driver’s claim against his or her own insurance company.
What damages is the insurance company liable for on a bad faith claim?
In a personal injury claim, the insurance company is generally responsible for paying your economic damages (e.g. medical bills, lost wages), non-economic damages (e.g. pain and suffering), and for any scarring or loss of use of a body part. In a bad faith claim, the insurance company is generally still responsible for paying for these things, but is also potentially liable for punitive and statutory damages.
Colorado statute provides that an insurance company that unreasonably delays or denies benefits owed to a first party claimant is liable for not only the benefits owed, but also a penalty of two times those benefits plus the claimant’s attorney’s fees and costs. Additionally, you may be entitled to recover punitive damages, also called exemplary damages, if the insurance company can be shown to have engaged in willful and wanton misconduct. This generally requires showing that the insurance company acted intentionally or recklessly and without regard to the rights of others.
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