Can I Sue an Insurance Company?

May 15, 2022

Can I Sue an Insurance Company?

When an insurance company fails to provide financial protection to a policyholder after an unplanned event or accident, it may be a case of insurance bad faith. Individuals pay into their insurance policies with the understanding that when such a situation occurs, they will be able to recoup some of their financial damages. An insurance company must be able to provide the person with a valid reason for denying a claim, and when they can’t, they may be acting in bad faith.

How Can a Policyholder Know If Their Insurance Company Acted in Bad Faith?

Every claim is unique, and the details of the situation dictate the necessary elements for a bad faith claim. In many cases, bad faith claims are based on the insurance company reasonably processing a claim, which may include:

  • Performing a proper investigation into the matter
  • Offering a reasonable valuation and a fair settlement
  • Giving approval to valid claims and providing an explanation for any denied claims
  • Paying the policyholder for approved claims
  • Performing these procedures promptly, without unreasonable delays

In situations such as car accidents, in which there is another party involved, an insurance company may show bad faith in the way they fail to represent the best financial interests of the policyholder. When one individual files a claim against another for their injuries, the insurance company must defend the case with their client’s best interests in mind. In these cases, bad faith usually falls into one of three categories:

  • Failure to defend. An insurance company should always provide a satisfactory defense on behalf of their client if there is a lawsuit involved.
  • Failure to settle. The insurance company must pay their policyholder for any damages for which they are found liable in a lawsuit. In addition to this scenario, an insurance company has to settle a lawsuit if it is obvious that a judgment at trial would be greater than the policy limits. Failure to do so may allow the insured person to be saddled with the additional liability. Either of these situations may constitute bad faith.
  • Handling the case with negligence. When an insurance company fails to defend a client’s case in the best way possible, it may indicate negligence and is thus a bad faith claim.

Can a Policyholder Sue Their Insurance Company in a Bad Faith Case?

If an insured individual’s insurance company rejects their claim, and they believe the company acted in bad faith, they may be entitled to file a lawsuit. Anyone considering this action should seek the counsel of an experienced attorney for advice and assistance in pursuing such a claim. In most situations, a person can proceed with a lawsuit on the basis of one or both of these scenarios:

  • Tort. This means the refusal to honor the claim ended in some type of harm to the insured individual.
  • Breach of contract. The insurance company has an obligation to pay the amount it owes to the policyholder based on the terms of the insurance policy. If they refuse to do so without good reason, they have breached the contract (the policy) and could be liable for any resulting damages.

How Do You File a Bad Faith Claim Against an Insurance Company?

For an individual to file a bad faith claim against their insurer, some of the paperwork, planning, and preparation they must do includes the following:

  • Collecting any relevant information. The documentation an individual may need for their bad faith case may include bills, medical records, police reports, the initial claims made in the case of an accident, and any information relevant to their case.
  • Reviewing and documenting their policy. It is a good idea to do this before moving forward with a claim as a means of understanding what exactly the insurance policy covers and to ensure that the denied claim was actually made in bad faith. In some cases, it is prudent to make a copy of the insurance policy since insurance companies who act in bad faith sometimes revise claimants’ policies without properly notifying them.
  • Documenting the claim denial. It is vital to have evidence that your claim was denied because some insurance companies may attempt to revise the denial and fabricate reasonable cause.
  • Requesting a review of the case. In some cases, claims are actually denied by mistake, so it is a good idea to seek a review to ensure there were no errors before pursuing a lawsuit. Be sure to document this entire process, including emails, phone conversations, and any other correspondence with the insurer.
  • Writing the insurance company a demand letter. If the insurer refuses to back down on the denial, the policyholder can reach out to them with a demand letter, summarizing the circumstances of the accident or other claim and the reason they feel that it should have been accepted. Such a letter should include all details related to the event, the reason they submitted the claim, and all evidence available that shows why the claim should be valid.
  • Contacting the state department of insurance and filing a complaint. This step allows the department to begin an investigation into the individual’s claim and suggests an appropriate course of action. It is important to note that the department of insurance cannot make an insurance company pay the insured individual the damages they seek, but their recommendation could weigh heavily as evidence against the insurer if a lawsuit is necessary.
  • Filing legal action against the insurance company. After seeking every other means of settling the dispute with no satisfactory response from the insurer, it may be necessary to begin a lawsuit.

California’s Bad Faith Insurance Laws

In the state of California, legislation for bad faith by insurance companies is included in the Fair Claims Settlement Practices Regulations. This contains statutes that explain precisely what is considered to be good conduct by insurance companies and what should take place to guarantee they are acting in good faith to the individuals they insure. Section 2695.7, more specifically, lays out what California law considers equitable, fair, and prompt settlements to be.

Seek Legal Counsel From a Firm With Experience

If you have filed a claim with your insurance company that has been denied, you may wonder if you have a case against them. The skilled team at Winthrop Law Group P.C. Attorneys at Law has the knowledge to walk you through the process and seek the best possible outcome. Visit our website today to find out how we can help.