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What does bad faith involve?

On Behalf of | Aug 6, 2021 | Contract Disputes

Customers purchase insurance to protect and preserve their financial well-being. A New York jury might award the plaintiff a substantial sum if a business owner faces a significant liability claim. An insurance policy may provide a settlement that keeps the business owner out of court and covers the loss. Insurance companies could deny claims, and, sometimes, those claims suffer rejections due to bad faith.

Concerns over bad faith

When an insurance company accepts a client, the insurance provider agrees with the risks that come with the deal. A company that signs a client to an auto policy with a $500,000 liability may end up obliged to pay out significant sums when the driver causes an accident. However, an insurance company could refuse to pay, leading to claims of “bad faith.”

Bad faith refers to the insurance company’s attempt to avoid paying a policyholder’s valid claim. The insurance company could try to back out by saying the policyholder violated the contract’s terms, even though it did not.

Bad faith may come in many forms, including misrepresentation and nondisclosure. Such tactics could be legally dubious and open the insurance company to a lawsuit.

Challenging bad faith

Addressing bad faith often involves filing a lawsuit against the insurance company. Applicable laws and regulations could make it harder for an insurance company to back out.

Still, some companies could be aggressive in their approach to denying claims as a matter of policy. Even so, the provider would breach its contractual obligations if the denial lacks legitimacy. For example, if a homeowners’ policy has a demolition exclusion, the provider could claim the exclusion when a worker suffers an injury while performing a minor repair. A lawsuit might challenge the company’s delineation of a minor repair project as a demolition job.