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What is a bad faith insurance claim?

On Behalf of | Jun 6, 2022 | Bad Faith Insurance Claims

Policyholders rely on insurance companies to help preserve their financial well-being. When someone takes out an auto, renter’s, or business liability policy, they assume the insurance company will pay as promised on covered incidents. Regardless of the type of insurance, the provider must follow the contract’s terms or potentially face a bad faith claim in an Arizona courtroom.

The legal concept of bad faith

When an insurance company sells a policy to someone, and the buyer does nothing illegal, the buyer expects the insurer to make payments on legitimate claims. If the insurance company refuses to pay or defend a client and does so unreasonably, the provider may be acting in bad faith.

Insurance companies must follow state laws and regulations regarding their business practices. Specifically, the insurance company has several duties it must follow. The duties involve obligations to make reasonable settlements, defend a policyholder, investigate claims, and more. Refusing to perform these duties could constitute bad faith.

Taking action after a bad faith claim

A policyholder may feel an insurance company acts in bad faith when it appears to drag out the investigation. Bad faith claims might also involve an insurance company attempting to lowball a settlement or, in some cases, claiming the incident falls outside of covered perils, despite the policy’s contract stating it is. Such actions might lead the customer to file a lawsuit against the insurance company.

Sometimes, clients may attempt to negotiate a settlement with an insurance company’s representative. The client might think the process is straightforward, not realizing the company may try to get out of paying a fair settlement. Hiring a skilled representative to negotiate with the insurance company may lead to a preferable outcome.