Insurers, are you prepared for bad faith suits?

Accusations of insurance carrier bad faith in the claims handling process have become almost routine. Does this sound familiar:

• The insured has sent your organization a bad faith demand without warning and has indicated they will be filing a declaratory judgment action against your company.
• Perhaps your company issued a coverage denial after carefully determining an exclusion applied to the fact pattern at issue.
• Maybe the claim investigation was delayed because the insured had not responded to repeated information requests, but the insured blames you for the passage of time.

Just because a claim has been handled reasonably and responsibly does not prevent accusations that an insurer’s claim handling was done in bad faith.

Bad faith claims are extra-contractual in nature. The contract, or insurance policy, provides certain benefits to its insured, but a bad faith claim seeks more—it seeks damages in excess of the benefits provided by the policy. These damages can be substantial and are meant to punish an insurer’s alleged bad behavior and provide a windfall to the insured—and the punishment is severe.

Bad faith damages can only be awarded in litigation, thus managing the risks of bad faith damages often involves the use of third-party experts in insurance coverage law and claims handling to review the file and assess the potential risk of successful bad faith judgements. If a disputed matter results in litigation, a third-party expert would be prepared to discuss the specific claims handling procedures and coverage determinations for the claim in question.

Recent case law and legislative efforts suggest a growing trend that broadens the ability for insureds to make bad faith claims. For decades, Roux professionals have provided technical support and expert consultation in coverage litigation, including testimony regarding the appropriate allocation of covered losses and the reasonableness of claims handling from a technical perspective. Recently, Greg Gaines has joined Roux to further expand our capabilities and capacity in the areas of claims handling and related advisory and administrative services. Greg is a licensed attorney who has over three decades of claim handling experience and has previously testified as an expert witness. Having spent his entire career in and around the insurance industry, his credentials for this type of work are unassailable.

Are you adequately prepared to respond to claims of bad faith? Don’t become a target for insureds with unreasonable expectations, and don’t let inaccurate and unfavorable allegations against your company go unaddressed. Reach out below if you think having an independent bad faith risk evaluation could provide value through better risk management.

Note: Roux provides technical claim handling and expert litigation support services and does not provide legal representation to its clients.