A bad faith insurance lawsuit arises when an insurance company denies a policyholder’s valid claim without a reasonable basis, or fails to properly investigate the claim in a reasonable amount of time. A bad faith claim for insurance arises between an insurance company and its customer. Ohio bad faith law only recognizes first-party claims, when a policyholder tries to recover on a claim made under an insurance policy they hold. There can be no claim of insurance bad faith between a third party and an insurance company.
What Is Insurance Bad Faith?
An insurance company has a duty of good faith and fair dealing when negotiating with its customers. Insurance bad faith occurs when an insurance company refuses to pay a valid claim without a reasonable basis, or fails to properly investigate a claim in a timely manner.
Bad faith insurance claims commonly arise when there is a dispute over the way an insurance company handled an insurance claim. A bad faith claim is rooted in the relationship between the insurance company and its customer. However, a claim of bad faith is not made under the parties’ contract. Rather, a claim of insurance bad faith is a tort claim that exists independent of contractual liability. When an insurance company breaches its duty of good faith and fair dealing to a customer and acts in bad faith, the customer may be entitled to additional relief beyond what is available under the insurance contract.
How Insurance Companies Defend Against a Bad Faith Claim
Insurance companies who have been accused of dealing in bad faith may try to defend themselves by claiming that the statute of limitations on a claim has expired, that there is no insurance coverage because of exclusions or other provisions in the language of the insurance policy, or because the question of insurance coverage had already been decided.
Often, an insurance company’s best defense to a claim of bad faith is to try to demonstrate that there is no coverage or that there is a “bona fide dispute” as to whether insurance coverage exists. To prevail, the insurance company must show that there was a reasonable basis for denying or delaying the claim, or that the insurance company had no reason to know that its position on coverage was unreasonable.
An insurance company can also defend against a claim of bad faith by arguing that it reasonably relied on the advice of an attorney in deciding not to extend insurance coverage. Claiming advice of counsel as a defense can be problematic, however, because this defense waives the attorney-client privilege and places discussions between the insurance company and its lawyers at issue.
In other cases, insurance companies will argue that the insurance coverage is void because the customer misrepresented certain facts when applying for insurance coverage.
Bad Faith Is More Than a Denial of Coverage
Some insurance policyholders mistakenly believe they have a claim for insurance bad faith simply because the insurance company denied their claim. This is not the case.
While an insurance company must take care to avoid denying a claim without a reasonable basis, insurance companies are entitled to deny claims on the basis of the language contained in the contract of insurance. An insurance company is not required to pay every claim that is submitted.
To succeed in a claim for insurance bad faith, a bad faith insurance lawyer must prove that the insurance company engaged in unreasonable conduct when denying a policyholder’s claim. This unreasonable conduct must be more than negligence, a mistake, or poor judgment.
To have a successful claim for insurance bad faith, the policyholder must first give the insurance company an opportunity to do what is right. If the insurance company refuses to honor the claim after having been given this opportunity, the policyholder may be able to pursue a claim for insurance bad faith.
How to Prove an Insurance Bad Faith Claim
Insurance bad faith litigation is complicated. Common situations that give rise to successful claims for bad faith include:
Not paying a high exposure claim on an insurance policy with a low policy limit
Lost opportunities to settle an insurance claim within insurance policy limits
Failing to inform a customer of material developments in settlement negotiations
Use of a flawed investigation as the basis to deny a claim
Competing claims for policy limits
Mishandling the defense, including disregarding a customer’s entitlement to independent counsel
Failing to tell a customer of the limitations of insurance coverage
Violations of claims handling requirements
Problematic entries in claims handling files
If you believe you have been a victim of an insurance bad faith claim, you should contact an Ohio insurance attorney as quickly as possible. Even though bad faith claims in Ohio are subject to a four-year statute of limitations, there may be other deadlines that apply to your case, and it is wise to get an attorney involved in the process sooner rather than later.
An Ohio insurance bad faith attorney can review your insurance claim to help you determine whether a claim for bad faith exists. An attorney will also help you take the steps necessary to protect and pursue your bad faith claim.
Tom Robenalt started his litigation career representing corporate defendants and insurance companies at a large firm in Cleveland. For the past 25 years, he has used that experience to help people fight bad faith insurance claims and secure the compensation that they and their families need.
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