California regulations safeguard the rights of policyholders by providing them with recourse when insurance companies fail to act in good faith.
To prove bad faith insurance, policyholders must gather evidence such as correspondence with the insurer, claim documents and any communication that shows the insurer’s unfair practices. Five key factors can be useful in establishing a case of bad faith insurance.
1. Unreasonable delay
The law requires that insurance companies handle claims promptly. Deliberate delays in processing a claim can be an indicator of bad faith. If an insurer takes months to respond to a claim without a valid reason, it may demonstrate their unwillingness to fulfill their contractual obligations.
2. Inadequate investigation
Insurance companies must conduct thorough investigations into claims to determine their validity. If they fail to do this or conduct a biased investigation in favor of denying the claim, it may indicate bad faith. This includes ignoring evidence or failing to interview witnesses who support the policyholder’s version of events.
3. Lowball settlement offers
Insurers may attempt to settle claims for the lowest possible amount. If an insurance company offers a settlement far below the reasonable value of the claim, it could be a sign of bad faith. Such lowball offers could reflect the insurer’s intention to minimize their payout rather than provide fair compensation.
4. Misrepresentation or concealment
If an insurance company misrepresents policy terms or coverage, or attempts to conceal information that is favorable to the policyholder, it could constitute bad faith. This may include not disclosing available benefits, policy limitations or changes in coverage without proper notification.
5. Violation of regulations
Title 10 of California’s Code of Regulations provides strict protections to consumers. Violation of these regulations by an insurance company could be evidence of bad faith. An example of this might be failure to provide the policyholder with a written explanation of a claim denial.
A bad faith insurance claim may result in payment of the original claim and additional damages. These may include punitive damages, legal fees and other compensation for the policyholder’s emotional distress or financial losses caused by the insurer’s bad faith actions.