As a California business owner, you undoubtedly know the importance of having various types of insurance for your company. You likely have general liability insurance, property insurance and maybe even business income insurance. Many companies need errors and omissions, directors and officers and cyber coverages as well. Though you likely hoped to never need to file a claim, you knew that having this coverage was an important safeguard.
Now, you may find yourself feeling differently about your insurance coverage because of difficulties you face with the insurer after having to file a claim. In fact, you may worry that you will not obtain the payout you need even though your policy covers the claim. What are your remedies for the carrier's conduct?
Insurance bad faith
Unfortunately, some insurance providers act in bad faith when responding to a claim made by you, or by a third person claiming you caused them injury, property damage or harm to their business. Insurers earn their profits by holding and investing the premiums you pay for as long as possible, so the very nature of their business creates an incentive to delay or deny claims, depriving the policyholder of the very service they paid for. This incentive is particularly present with "stock" companies owned by shareholders, who demand strong profits year in and year out.
So to protect policyholders, courts have held that carriers have an implied duty of "good faith and fair dealing" to policyholders when responding to claims. Beyond having to pay what it owes under the policy, in California and some other states, an insurer found liable for bad faith in coverage litigation must pay the policyholder's attorney's fees for proving coverage, and may be liable for punitive damages if it acted with malice, oppression or fraud. Individual policyholders may also recover emotional distress damages.
A number of actions could indicate that an insurance company is acting in bad faith, and some examples include:
- Not completing a timely, objective and thorough investigation into the claim
- Seeking to find any basis to deny coverage rather than making good faith efforts to find it
- Flat-out refusing to pay a claim even if it is supported by a reasonable interpretation of the applicable policy language, or by applicable law
- Offering a low-ball settlement, i.e., an amount less than the claim's actual worth
- Delaying the claim process by requesting unnecessary or duplicative information
- Acting in deceptive ways, such as misrepresenting or concealing policy coverages or not informing you of a claim deadline.
Though you want to trust your insurance providers, these companies are in the business of making money, and some violate the law by favoring their interests in earning a profit over insureds' interests in receiving the protection they pay for.
What can you do?
As a business owner, you understand the importance of treating clients and customers with respect, and you also understand the importance of having insurance coverage when needed in order to protect your company during a difficult time. When you have a claim, you should report it to the insurer immediately. If you believe your claim is being delayed, the carrier appears to be looking for any excuse to deny coverage, or you are offered little to no compensation for your company's loss, you should consider your legal options early on. Propery, business interruption and other "first party" coverages typically provide the policyholder only one year -- sometimes two -- in which to sue to recover policy proceeds. This is a highly technical area of the law and you should consult with an attorney with lots of experience in the field.