Insurance companies exist to generate a profit, which can be difficult to do if they settle too many claims. This means insurers often look for any valid reason to deny a claim and in the absence of one, they may act in bad faith. This may be common in cases of inherent diminished value, where a policyholder has incurred substantial losses in the value of their vehicle even after repairs have been made.
Here’s what you should know about bad faith insurance, how it may appear in IDV claims, and how to get legal help after a car accident or insurance claim denial.
Defining Bad Faith Insurance
Bad faith insurance pertains to an insurance company’s effort to subvert its commitments to customers, such as refusing to pay a valid claim or failing to examine and settle a claim within a stipulated timeframe. An insurance agency might operate in bad faith in a number of different ways.
That said, small errors do not usually imply bad faith. Consumers are protected by state laws that prohibit insurance providers from acting in bad faith. If a customer believes they have been a victim of bad faith, they should address their insurer or seek legal advice.
Examples of Bad Faith Insurance
An insurer may be acting in bad faith against you if they:
- Misrepresent the terms and/or language of your agreed upon contract
- Refuse to disclose the provisions and/or exclusions of your contract in order to avoid settling a car accident claim
- Delay the investigation and processing of your claim beyond a reasonable time frame
- Ask you to provide more proof that your loss should be covered than is necessary
- Deny your legitimate claim
What Does Bad Faith Insurance Look Like in IDV Claims?
When you file a claim for inherent diminished value, your insurer can legally ask you to show evidence that the vehicle is covered, that it was damaged, and that you suffered a loss of value in the vehicle even after repairs were made to restore the vehicle to its original condition. This can make it difficult for some policyholders to identify bad faith actors. However, if the insurer continues to ask for more documentation and doesn’t seem satisfied with any of the evidence you provide, this could be an indicator of bad faith.
Another example of bad faith insurance in relation to an IDV claim is the denial of inherent diminished value in states where IDV claims are legally the responsibility of the insurer. In Massachusetts, a recent Supreme Judicial Court case spearheaded by Kevin J. McCullough established that going forward, insurance companies would no longer be able to deny valid claims of inherent diminished value. Insurers who continue to do so may be subject to a bad faith insurance claim.
Damages Insurers Are Responsible for When Acting in Bad Faith
If an insurance company has acted in bad faith, they may be responsible for more than just the original damages included in the claim. A court may order an insurer to compensate a policyholder for expenses incurred for attorney’s fees, lost wages, and other costs related specifically to pursuing a claim of bad faith.
In cases where an insurer has acted egregiously, a court may choose to award punitive damages to penalize the insurance provider for their actions. Punitive damages are designed to discourage the insurer from acting in bad faith with other consumers. If a court rules that the insurance company did not act in bad faith and only made a mistake, typically a court will simply order the insurer to pay the original claim.
Potential Defenses from Your Insurance Company
Your insurance company may attempt to defend themselves against a bad faith claim by suggesting their error was a simple mistake that can be remedied by paying the original claim. Or, they may suggest your vehicle wasn’t covered by your insurance at the time of the accident or that you had even missed a payment or allowed your insurance to lapse.
It’s important to be prepared ahead of time for potential defenses your insurer may try to use to discredit or devalue your claim in court. Ideally, you will be able to anticipate and provide evidence against any suggestions from your insurance adjuster that their refusal to pay your claim was valid.
When Is Litigation Necessary?
Litigation may be necessary if your insurer continues to delay the processing of your claim or does not allow you to appeal a denial of your claim. Most insurance companies count on policyholders becoming so frustrated by the claims process that they decide it isn’t worth whatever they stand to get from the settlement and give up.
This makes it easier for the insurance company to deny the claim or let it expire past the statute of limitations without further issue. This may occur more frequently in IDV cases since the policyholder typically has had their vehicle repaired and may not think they stand to gain much for inherent diminished value.
How Hiring an Experienced Insurance Lawyer Can Help
A veteran insurance lawyer can help you determine if your insurer may be acting in bad faith and if it’s in your best interests to pursue a claim for compensation. At Mazow | McCullough, PC, we understand how frustrating it is when you rely on the insurance company you pay to make good on a covered claim and they refuse or extend the process beyond what is reasonable.
Contact us today to learn more about bad faith insurance claims, inherent diminished value claims, and more. Dial (978) 744-8000 or toll free (855) 693-9084 to speak with a member of our legal team or to schedule your initial consultation to discuss your case.