Suing the Insurance Company for “Bad Faith”
You pay your insurance premiums on time, every payment period. You live a reasonably safe life. Then something happens beyond your control — you’re in an accident, you suffer a health catastrophe, your home is damaged — and you need to turn to your insurance company.
Unfortunately, you don’t need to be a legal expert to know insurers often don’t do what they’re supposed to do. Their tactics are well known: delay, red tape, outright refusal to pay. Thankfully, there are legal avenues for dealing with insurance companies that behave badly. Perhaps the most important is the concept of “bad faith.”
A Legal Duty
By law, insurance companies are considered “fiduciaries.” As such, they have a duty of good faith and fair dealing. That requirement is defined by case law in most places, but Georgia has gone even further, encoding its protections against insurance bad faith in statute.
The good-faith requirement means insurers must not delay, withhold or deny legitimate claims. By Georgia law, bad-faith failure to pay a claim within 60 days leaves the insurance company liable for one and a half times the amount the insured party lost as a result, or $5,000, whichever is greater, plus attorney’s fees.
But just what qualifies as “bad faith?” Each case is different, but as a general matter, courts in Georgia have ruled that insurance companies must not place their own interests above those of the insured.
Many cases of bad faith involve auto accidents. Typically, an injured party will sue or try to collect from the other driver’s insurance company. At some point, the injured party’s attorney will offer to settle the lawsuit with the insurance company for the limits of the policy. If agreeing to the settlement would be in the best interests of the insured (the driver of the other car), the insurance company must accept it, even if doing so would force it to spend money it would rather keep.
In such cases, failure by insurance companies to settle within reasonable time limits set by the injured plaintiffs has been held to constitute bad faith. Insurance companies have been held liable for large damages awarded to insured defendants who lost major lawsuits after the insurance companies refused to settle with the plaintiffs.
Breach of Contract
Bad faith is not the only way to go after insurance companies when they refuse to follow the law. Insurers are also subject to lawsuits for breach of contract.
One of the key differences between the two is damages. In the case of bad faith, the insured can collect substantially more than he or she lost as a result of the insurance company’s refusal to pay. In the case of breach of contract, damages will only cover the actual amount lost.