Bad Faith Insurance Claims Concerning Coronavirus (COVID-19)
Insurance companies sell policies by convincing us that we should protect ourselves in case the unexpected happens. The unexpected includes things like physical injury, damage to property, harm to our businesses and illness. But insurance companies are not altruistic. They exist to make a profit. They make a profit by paying out less money in claims than insureds pay in premium. Therefore, it is in the best interest of the insurance company to deny claims. Sometimes, an insurance company will engage in bad faith practices to deny a claim.
Bad Faith Practices are Forbidden
Insurance companies owe a duty to their insureds to act in good faith and to deal fairly with them. The reason is that an insurance company is a mammoth organization that usually deals with individuals or small businesses. If the insurance company refuses to pay a claim, the individual or small business has minimal resources to fight the company. Thus, insureds may file lawsuits against insurance companies acting in bad faith to discourage using bad faith practices. In these lawsuits, if the insurance company engages in certain practices, the insurance company can be liable to the insured for its bad faith practices. Such suits are authorized by the common law and also based on statutes modeled after the National Association of Insurance Commissions’ Model Unfair Claims Settlement Practices Act.
The Novel Coronavirus Will Lead to a Wave of Claims
The novel coronavirus will cause many people to catch COVID-19, the disease caused by the virus. Most of these people will recover, but they will miss work and perhaps be unable to make mortgage or rent payments. Some of them will need hospitalization with the accompanying medical expenses. Some of them will die. Businesses, as well, will suffer losses because of a decline in business, or will be shut down by a lockdown or shelter in place order. All these repercussions will cause a wave of insurance claims. Unfortunately a number of them will confront bad faith practices by insurance companies.
If you or a loved one is the victim of one of these bad faith practices, you should consult an attorney with experience in suing insurance companies for committing such acts.
What is a Bad Faith?
Bad faith practices by insurance companies can consist of a variety of actions taken by an insurance company or an insurance company adjuster. The Model Act lists bad faith claims practices. Each of these practices could apply to claims submitted because of the novel coronavirus. Unfortunately, the list is long:
- Knowingly misrepresenting to claimants and insureds relevant facts or policy provisions relating to coverages at issue;
- Failing to acknowledge with reasonable promptness pertinent communications with respect to claims arising under its policies;
- Failing to adopt and implement reasonable standards for the prompt investigation and settlement of claims arising under its policies;
- Not attempting in good faith to effectuate prompt, fair and equitable settlement of claims submitted in which liability has become reasonably clear;
- Compelling insureds or beneficiaries to institute suits to recover amounts due under its policies by offering substantially less than the amounts ultimately recovered in suits brought by them;
- Refusing to pay claims without conducting a reasonable investigation;
- Refusing business interruption insurance claims;
- Failing to affirm or deny coverage of claims within a reasonable time after having completed its investigation related to such claim or claims;
- Attempting to settle or settling claims for less than the amount that a reasonable person would believe the insured or beneficiary was entitled by reference to written or printed advertising material accompanying or made part of an application;
- Attempting to settle or settling claims on the basis of an application that was materially altered without notice to, or knowledge or consent of, the insured;
- Making claims payments to an insured or beneficiary without indicating the coverage under which each payment is being made;
- Unreasonably delaying the investigation or payment of claims by requiring both a formal proof of loss form and subsequent verification that would result in duplication of information and verification appearing in the formal proof of loss form;
- Failing in the case of claims denials or offers of compromise settlement to promptly provide a reasonable and accurate explanation of the basis for such actions;
- Failing to provide forms necessary to present claims within fifteen (15) calendar days of a request with reasonable explanations regarding their use;
- Failing to adopt and implement reasonable standards to assure that the repairs of a repairer owned by or required to be used by the insurer are performed in a workmanlike manner.
If an insurance company engages in any of these bad faith practices, the Model Act provides for fines and revocation of the insurer’s license.