It is impossible to imagine surviving in the modern world without at least one type of insurance. Most people have several insurance policies at any given time with the most common types of insurance being car insurance and homeowner’s insurance. However, many people also have numerous other insurance policies such as health, life, disability, professional liability or commercial. Because of the prevalence of insurance and how insurance companies collect premiums as a condition of the policy being issued, most states have laws or statutes that require the insurance companies to comply with certain regulations to limit potential issues of acting in bad faith.
How Do Insurance Regulations Work?
The regulations can deal with ensuring the financial stability of the insurance companies by regulating the amount of cash in reserves to pay future claims. Because of the nature of the relationship between the insurer and the insured, insurance companies are considered fiduciaries – meaning companies have to serve as a sort of trustee for the benefit of the insured. This relationship creates an unwritten covenant, or clause, that is automatically included in every contract of insurance – the insurer’s duty to act in good faith in resolving claims. But even with the regulations and the duty to act in good faith, insurers still act in bad faith from time to time. When the insurer acts in bad faith, an insured can seek compensation for any damages they have incurred due to the insurer’s bad faith.
Understanding the Bad Faith Law
To understand if your insurance company is acting in bad faith, you must understand the difference between a first-party bad faith claim and a third-party bad faith claim. For example, in a first-party car insurance claim, the policyholder (the insured) is bringing a direct action against the insurer for covered losses to their car or property. It could also include claims against the insurance company for uninsured motorist coverage or underinsured motorist coverage. The important factor is that the claim is made directly against the insurance company as opposed to a third-party individual or business. In a third-party claim scenario, the policyholder has a claim brought against them and the insurance company is called upon to defend and indemnify the insured. Using the car insurance example, this type of claim arises when the insured driver negligently strikes another vehicle and causes damages. Whether it is a first-party claim or a third-party claim, the insurance company has a duty to act in good faith to settle the claim or defend the insured if the claim turns into a lawsuit.
When Does the Bad Faith Law Occur?
In the typical third-party bad faith claim, the insured gets sued for alleged negligence and the insurer is called upon to defend the insured. The duty to defend the insured is a part of almost every insurance policy which is a contract between the insurer and the insured. Bad faith can occur if the insurer refuses to defend the insured. Bad faith can also occur if the insurer acts unreasonably in refusing to settle the claim against the insured. Because the insurance company is a fiduciary, the insurer must place the insured’s financial interest ahead of the insurance company’s financial interest. If the insurance company fails to adequately protect the insured’s financial interest, it can be sued for bad faith failure to settle. Examples of acting in bad faith can occur when failing to settle but also when the insurance company fails to properly investigate the claim, or fails to properly analyze the issues of liability and damages.
The Bad Faith Law in Missouri
Missouri has created a statutory cause of action in first-party bad faith cases. The Missouri statute describes the type of damages that can be recovered against the insurer and requires that the plaintiff prove that the insurer’s actions in handling the first-party claim were vexatious, or annoying, frivolous or dilatory. Missouri also has regulations and a statute that describes unfair claims practices, including misrepresentation of policy provisions, the failure to acknowledge pertinent communications, refusing to pay claims without a reasonable investigation and the failure to adopt and implement reasonable standards for the prompt investigation and settlement of claims arising under the insurance policy.
Has your Insurer Acted in Bad Faith?
If it appears that the insurance company is placing its financial interests ahead of your financial interest as the insured, you may have an independent bad faith claim against your insurance company. Contact one of our experienced bad faith lawyers to discuss your potential case.