WHAT IS INSURANCE BAD FAITH
Insurance companies (also known as insurers) have an “implied covenant of good faith and fair dealing” duty to their policyholders (also known as insureds). If the insurance company fails to process your claim fairly or fails to act in good faith, you have grounds for a bad faith insurance lawsuit.
Insurance companies are held to a high duty standard because:
- If an insurer denies, undervalues or delays a claim, the insured may be ruined financially, lose a job, damage family relationships, emotionally distressed.
- Due to their big, deep pockets, insurance companies have large teams of lawyers and extensive negotiating experience to fight against their policyholders, making disputes with insurers an unequal and unfair fight
Bad Faith Examples
You may have a bad faith insurance case if:
- The insurance company undervalued or denied your claim after failing to adequately investigate your property damage
- The insurance company intentionally misinterpreted or inaccurately represented their own policy to minimize the cost of your claim
- The insurer took an unreasonable length of time to pay your claim
- Your claim was denied but you weren’t given a satisfactory reason
Bad faith lawsuits can also be brought against an insurance company by defendants in personal injury cases. If the insurance company is obligated to defend a policyholder from a liability lawsuit and they fail to do so or don’t meet their duty to the policyholder, the policyholder may be able to file a bad faith insurance lawsuit against the insurance company.
Do You Have a Legitimate Insurance Bad Faith Claim?
Not every claim denial rises to the level of bad faith. For instance, your homeowners’ policy may simply not cover the type of damage your home suffered or your health insurance policy does not cover the type of medical treatment provided. When in doubt, thoroughly review your insurance policy. Insurance policies are long, complicated documents with lots of exclusions - i.e., types of damage or treatments that are not covered.
Unsurprisingly, since insurance contracts are written by the companies themselves, they always are skewed for the insurer’s benefit and are meant to minimize the claims that insurance companies must honor and cover.
Settlements in Bad Faith Insurance Lawsuits
Settlements in bad faith insurance cases are based on individualized facts of each case, the insurer’s reputation and any past bad faith claims against the insurer. The settlement could potentially be much higher than what you would have been paid had your claim been honored in the first place.
One of the reasons bad faith insurance verdicts are sometimes very high and dwarf the initial policy limit is because of the punitive damages allowed, which are meant to act as a meaningful deterrent against future bad faith acts by the insurer.
Because the purpose of punitive damages is to act as a deterrent, when a company has billions or trillions of dollars in assets, the punitive damages need to be sufficiently high to make the insurance company feel it and be dissuaded from repeating bad faith in the future.
The “implied covenant of good faith and fair dealing” is an essential model of modern life. Nearly everyone has some type of insurance, and we all need to be able to rely on the insurance we buy to be available when the unexpected happens. When insurers act in bad faith, they’re betraying our trust in that foundational bedrock. The courts and lawmakers therefore are motivated to discourage that type of bad behavior.
Here are some examples of bad faith court decisions.
Michael Mazik v. GEICO, California, May 2019
In a car accident case, Mazik was the plaintiff and sued his own insurer, GEICO, for bad faith. The jury verdict against GEICO was $300,000 for mental suffering, anxiety and emotional distress, $13,508 in attorney costs, and $4 million in punitive damages, with the court reducing it to $1 million.
The appellate judge wrote that there was evidence that GEICO intentionally manipulated the facts to create a favorable record justifying its offers to Mazik below policy limits. The trial court found that GEICO “cherry picked” medical information and disregarded findings it thought unfavorable to it. For instance, GEICO knew there was a doctor’s report indicating that Mazik would have ongoing problems. However, for strategic reasons, GEICO failed to provide that report to its own medical expert on whom GEICO relied for its claim valuation.
The court found that this strategic manipulation indicated intentional conduct rather than mere accident.
The appeals court also felt a jury could have decided GEICO adopted an improper adversary approach to resolving Mazik’s claim. The appeals court said the “degree of reprehensibility” was most important in determining if the amount of punitive damages was fair. Reprehensibility itself can be weighed by factors including the victim’s financial situation, accidental or intentional malice or deceit and how often the actions occurred, according to the court.
State Farm v. Curtis Campbell, 2003
Curtis Campbell, a State Farm auto policyholder, was liable in an auto accident that left one person dead and another disabled for life. The plaintiffs agreed to settle for Campbell’s policy limit, which was $50,000.
Instead of settling for the limits, State Farm decided to fight the negligence lawsuit on Campbell’s behalf. It told Campbell his personal assets would be safe, and it would defend Campbell in the personal injury lawsuit. Campbell lost at court, and the jury verdict against him was $185,849. State Farm told Campbell that it would pay the $50,000 policy limit but the other $135,849 in excess liability was his problem.
Campbell sued State Farm, alleging they failed to defend him properly, committed fraud and intentionally inflicted emotional distress. Campbell won, not $185,849 or $185,849 plus $50,000, but the judgment against State Farm was $1 million. In addition to those compensatory damages, the court also awarded Campbell $145 million in punitive damages.
Omar Daoud v. GEICO, California 2018
An Orange County jury found GEICO guilty of operating in bad faith and using organization
-wide stalling tactics to drag out an auto insurance policy settlement with a disabled Irvine businessman for almost six years.
“The findings of the jury underscore the importance of insurance companies to act fairly, promptly, equitably and in the public interest, rather than using their size and power to limit disbursements and maximize their gains”
On March 29, 2018, after a trial lasting four weeks, a jury awarded Omar Dauod $9.9 million in general damages, and on April 10, 2018, the jury awarded Dauod $13 million in punitive damages against GEICO, bringing the total judgment to almost $23 million.
Dauod was severely injured in an auto accident on October 29, 2009. He underwent surgery for his injuries and continuous treatment in 2010 and 2011, incurring more than $125,000 in medical expenses. In April and May 2012, he requested payment of $400,000 of his coverage from GEICO.
The jury found that:
- GEICO delayed payments of policy benefits, unreasonably and without proper cause;
- The delays caused harm to the plaintiff;
- GEICO actions resulted in past and future economic loss to the plaintiff;
- GEICO caused noneconomic loss, including emotional distress and mental suffering;
- The company engaged in conduct with malice, oppression and fraud;
- GEICO officers and managers knew of, approved and authorized the conduct.
The jury awarded total general damages of $9,962,494.66 related to the Bad Faith Conduct: Pain and suffering, $4,000,000; loss of two houses, $1,942,618 including interest; loss of business, $3,911,520 including interest; and $108,355 in attorney’s fees, including interest.
Dauod’s lawyer said it was disheartening to see the impact the delaying tactics by GEICO had on the Dauod family, financially and emotionally, since GEICO is a subsidiary of Berkshire Hathaway (NYSE: BRK.A), which had $242 billion in revenues in 2017, according to its annual report, including revenues from its insurance subsidiaries of $192.9 billion.
“Mr. Dauod couldn’t work, he had ongoing medical bills he couldn’t pay, and they lost their two homes, which was humiliating,” Dauod’s lawyer, Ballidis, said. “GEICO knew of their troubles, but rather than expediting reimbursement, the company continued with delay tactics. It has a proven pattern of delaying payments of claims to try and force plaintiffs to accept a lower amount, while they have use of the money. They requested spurious and irrelevant documents, disputed the need for Mr. Dauod’s medical treatments and delayed scheduling a medical examiner for more than a year. The GEICO-appointed examiner agreed with Mr. Dauod’s doctors, which GEICO never shared until forced to during arbitration.”
Ballidis cited Section 790.03 of the California Insurance Code, Section (h) and the subsections, which serve as a checklist of how GEICO operated in bad faith.
“Previous California Supreme Court decisions reinforced the notion that insurance companies have a fiduciary responsibility to operate in good faith,” Ballidis said. “This includes the qualities of decency and humanity inherent in the responsibilities of a fiduciary. Sadly, the delays to make things right with the Dauod family continue. GEICO has refused to pay the verdict, was unapologetic during the punitive damage phase of the trial and said it will appeal the judgment of the jury.”