Insurance policies protect us against unforeseen and unfortunate events. They give us security. They give us peace of mind.
Whether it is a natural disaster, auto accident, or other disabling injury, policy holders, or “insureds,” expect their insurance companies to deal with them fairly and expeditiously. However, insurance companies do not always treat their insureds properly. For example, an insurance company may improperly deny a claim, agree to pay only a portion of the true value of the claim, or delay payment for months or even years.
Insurance bad faith is a “tort” claim that an insured may have against their insurance company as a result of the insurance company’s bad acts. Under the law of most jurisdictions in the United States, insurance companies owe a duty of good faith and fair dealing to their insureds. This duty is often referred to as the “implied covenant of good faith and fair dealing,” which exists by operation of law in every insurance contract.
If an insurance company violates this covenant, the insured may bring an insurance bad faith tort claim against the insurance company in addition to a breach of contract claim. The tort-contract distinction is important because “punitive” or “exemplary” damages, which are monetary damages intended to punish or make an example out of the wrongdoer, typically are unavailable for contract claims. However, such damages may be available for tort claims. As a result, a plaintiff in an insurance bad faith case may be able to recover an amount greater than the original face value of the insurance policy.