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What is “bad faith” and when can it occur with an insurance company?



Last year Walmart sued three of their own insurance companies for “bad faith, in connection with a 2014 accident involving comedian Tracy Morgan. Walmart said the companies had not paid their portion of the settlement it reached after one of their drivers caused the accident. By refusing to honor their policies, Walmart alleged “bad faith.” (They were finally reimbursed this year.)


What is bad faith?

According to the legal dictionaries, bad faith is considered an intentional dishonest act by not fulfilling legal or contractual obligations, misleading another, entering into an agreement without the intention or means to fulfill it, or violating basic standards of honesty in dealing with others.

When someone or an organization alleges bad faith with an insurance company, it is usually because the insurance company refuses to pay for the benefits to which the policy holder legally entitled. Bad faith examples in a personal injury accident can include any or some of the following instances.

  • Undue delay in assessing and completing a claim

  • Repeated claims of lost paperwork

  • Ignoring a doctor’s medical records

  • Refusing to pay sufficiently on a claim

  • Denying a valid claim

  • Attempting to settle a claim based on an application or policy which was changed without notice, knowledge or the consent of the insured

  • Failure of the insurance company to provide reasonable explanations when denying or devaluing a claim

  • Using illegal and fraudulent investigative methods and procedures, or failing to investigate a claim

  • Failure to settle third-party claims

Most states recognize what is called "implied covenant of good faith and fair dealing" which is breached by acts of bad faith. If someone has paid their premiums, and done nothing to breach the contract he has with the insurance company, he can take legal action against the insurance company for failure to honor the policy.


Are you a victim of bad faith?

If you were involved in a personal injury accident and feel your insurance company has not acted in your best interests (failed to pay your medical benefits, the cost of a rental car, or your under-insured motorist coverage, for example) and you have paid for those provisions, you can sue them on the grounds of bad faith. In many states, if the suit is successful, the insurance company has to pay your attorney fees, as well as the value of the claim plus a certain percentage of the total damages. In some cases, punitive damages are permitted.

Fortunately, there are not that many cases of bad faith, but when it does occur, it pays to fight. Before filing suit, however, you should consider hiring an attorney to handle your case, as an experienced lawyer will know the law and know how to properly advise you. It’s even possible that the insurance company will agree to settle the case after all, as it could cost them a great deal of money. Just having an attorney on your side may greatly help your cause.


If you feel an insurance company has unfairly denied or delayed paying a valid personal injury claim, give us a call at 920-725-8464, or toll free at 1-800-529-1552. Our personal injury consultations are always free.


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If you have any questions about this topic or any other questions related to personal injury law, please call us at 920-725-8464, or toll free at 1-800-529-1552. Our personal injury consultations are always free.

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