Previously, we began looking at a case in which an insurance company was ordered to pay $50,000 in punitive damages to a business for denying coverage for fire losses due to a mistake in the insurance company’s records. As we noted, both the finding of insurance bad faith and the award of punitive damages were upheld on appeal.
One of the points the appeals court made in the case is that a finding of bad faith liability is dependent on whether an insurance company’s refusal to pay benefits to an insured was reasonable. If so, there is no bad faith; if not, a court is able to make a finding of bad faith and order appropriate damages. As this case shows, one type of damages available in these cases is punitive damages.
In order to establish a claim of insurance bad faith, a plaintiff must be able to demonstrate, first of all, that the claim or claims he or she submitted to the insurance company were covered under his or her policy. This is, as can be imagined, often a point of contention. The second element that must be proven is that the insurance company refused to accept a reasonable settlement demand for an amount within the limits of the policy.
Exactly what constitutes a reasonable settlement can also be a grey area. A settlement demand is considered to be reasonable if the insurance company knew or should have known that the potential judgment was likely to be greater than the amount of the settlement based on the injuries or loss in the case, and the insurance company’s probable liability. Thirdly, a plaintiff must prove that a monetary judgment was entered against the insurance company for an amount greater than the policy limits.
Pursuing a case for insurance bad faith can be an important part of how an insured recovers damages as a result of an insurance carrier’s failure to deal fairly. In any case, working with an experienced attorney helps ensure an insured builds the strongest possible case.