Insurers operate on the principle of indemnity. Indemnity means an insurer mostly restores a policyholder’s financial position after an insured event occurs. When that does not happen, a lawyer might have to help a victim obtain their just compensation. Just compensation would be equal to the cost of damages up to the policy limits and minus any deductible.
Auto insurance is a good example of how indemnity works. If another driver of an insured vehicle dents an insured car, auto insurance should cover the repair costs up to the policy limits.
Insurance generally is divided into two types: property and casualty, which insures private property, and the other is life and health, which insures an individual’s health and their family’s standard of living. The principle of indemnity applies and says the insurer has made a legal contract to restore the policyholder’s general finances following an insured event.
If one bought an insurance policy, paid all of the premiums on time, and suffered an event that should be covered by the insurance policy, they can file an insurance claim. The claim describes the event and the relevant policy that provides coverage. An insurance adjuster reviews the claim and is supposed to okay payments for legitimate claims.
That is where the potential for bad faith insurance arises. If an individual files a legitimate insurance claim and the insurance company does not provide the full benefits in accordance with the contract, then a bad faith insurance case might arise. When an insurer engages in bad faith, policyholders do not obtain their full benefits and might find an entire claim denied in part or in whole, despite being covered by the insurance contract.
If an insurer lowballs a policyholder in order to push a settlement that the insurer knows does not abide the principle of indemnity, then a bad faith claim could arise. Virtually any time an insurer intentionally denies a valid claim in part or in whole, the insurer is not abiding the contractual terms of the insurance contract.
Bad faith is not a criminal act, but it is a violation of civil laws in virtually all states. Bad faith also violates the principle of indemnity, which is the main reason why the insurance market exists. When policyholders file valid claims and get less than they should or nothing at all, then the matter rises to the level of a legal dispute that could wind up in local courts.
The recent global Coronavirus (COVID-19) pandemic has triggered allegations of a wide-range of bad faith insurance claims across virtually all insurance lines. While a global pandemic is relatively rare, they are examples of the types of unexpected risks that insurance policies are supposed to help policyholders to manage.
Many news reports and industry studies are affirming a recent rise in claims of bad faith by insurers who denied various insurance claims in part or in whole. Many insurers also allegedly delayed payments to policyholders in violation of the indemnity principle that they promised to uphold for their policyholders.
While the pandemic is a rare event, it does a great job of illustrating how highly unexpected events could lead to unexpected claims as well as denials, delays, or reductions in payouts. The following is a closer look at how the allegations of bad faith among insurers are on the rise in part due to the COVID-19 pandemic.
The Consumer Federation of America (CFA) in 2020 became very concerned about potential bad faith issues in the life and health insurance segment. Many life insurers in Europe were accused of denying valid insurance claims based on COVID-19 complications or otherwise delaying payments to policyholders.
CFA officials notified the National Association of Insurance Commissioners of the need for additional rules to stop insurers from denying life insurance coverage for claims related to COVID-19. The CFA also urged life insurers in the United States to voluntarily uphold COVID-19 claims and provide transparency in the claims process.
Motorists in many states are objecting to their auto insurers overcharging them for insurance rates during the pandemic. Virtually all states experienced a significant reduction in traffic during various local and statewide lockdowns during the COVID-19 pandemic. Motorists have a legal obligation to purchase auto insurance, which has rates based in part on the likelihood of getting into an accident locally.
Since lockdowns and stay-at-home orders greatly reduced the amounts of traffic in just about every locale across the nation, auto insurance rates wound up being much higher than needed. While some auto insurers lowered their rates and issued refunds or credits to policyholders, a lot of auto insurers did not. That has many facing accusations of bad faith and potential regulatory actions by respective state insurance commissioners.
Many commercial insurance policies include insurance protection for business interruptions. A business interruption might be a power outage that forces a shutdown for a period or time, for example. Almost all U.S. states and territories forced businesses to shut down for a period of time during the COVID-19 pandemic.
Many businesses and other organizations with commercial insurance plans in place had to close their doors due to no fault of their own. That caused many to file for business interruption insurance claims to offset their losses. However, many insurers denied claims due to government actions, which often are excluded from insurance protection.
If a local or federal unit of government destroys a business during a military action, insurance companies would deny any claim because it was an intentional act of war. Intentional acts done by a government is not an accident.
When countless business across the United States have to shut their doors and suffer significant reductions in business due to government decree, many insurers are using that as grounds to deny claims. That could give rise to bad faith claims by insurers providing commercial coverages.
Whether you are a consumer, a business owner, or otherwise have an insurance claim that you think was not handled properly, a bad faith claim might in order. Contact the Pittsburgh bad faith insurance lawyers at AlpernSchubert P.C. for more information. Call us at 412-765-1888 or contact us online for a free consultation. Located in Pittsburgh, we serve clients throughout western Pennsylvania, including Allegheny County, Lawrence County, and Washington County.