How Auto Insurance Companies Can Act in Bad Faith

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Key Points:

  • Insurance companies have a legal duty to exercise good faith and fair dealings when handling a claim, whether the claim is filed by the insured or an injured third party.
  • When it breaches this duty and acts in bad faith, the carrier has failed to act in the best interest of the insured and has exposed them to the risk of litigation.
  • Bad faith can take many forms but often involves unreasonably delaying, withholding, or denying coverage based on a valid claim.
  • When an insurance company acts in bad faith when handling liability claims, it may have to pay damages far beyond the applicable policy limit.

When you purchase auto coverage from an insurance company, that company makes a promise to protect you under the terms of the policy. In other words, your relationship with the insurance carrier is based on trust—if you get into an accident, it will pay your damages. If you injure someone else in an accident, your carrier will pay the damages so that you don’t have to pay out of your own pocket.

The insurance company has a legal duty to exercise good faith and fair dealings when handling a claim, whether the claim is filed by the insured or an injured third party. When it breaches this duty, the carrier has failed to act in the best interest of the insured and has exposed them to the risk of litigation. That means the insurance company has broken its promise under the contract and has acted in bad faith. Bad faith may involve unreasonably delaying, withholding, or denying coverage based on a valid claim.

Most people don’t understand the laws governing insurance company conduct and may not realize the carrier can be penalized for acting in bad faith. As a result, insurance companies know they can often get away with using illegal tactics to pay out little to nothing in compensation, protecting their bottom line at the victim’s expense.

This guide explains common ways that car insurance companies act in bad faith and how you can avoid being taken advantage of by the carrier when seeking compensation for your accident.

Georgia Laws That Protect Against Insurance Companies Acting in Bad Faith

The insurance company has a contractual and legal duty to the insured to meet its obligations under the policy. Bad faith claims brought by a policyholder are governed by O.C.G.A. § 33-4-6, which provides:

“In the event of a loss which is covered by a policy of insurance and the refusal of the insurer to pay the same within 60 days after a demand has been made by the holder of the policy and a finding has been made that such refusal was in bad faith, the insurer shall be liable to pay such holder, in addition to the loss, not more than 50 percent of the liability of the insurer for the loss or $5,000.00, whichever is greater, and all reasonable attorney’s fees for the  prosecution of the action against the insurer.”

This statute means that the insured has a bad faith claim against the carrier if it fails to pay losses that it owes in a timely manner, and the carrier may have to pay penalties and fees in first-party cases filed by the policyholder.

Bad faith claims in liability cases allow for much broader recovery, however. When a victim files a claim against an at-fault driver’s liability policy, Georgia law imposes a duty requiring the carrier to investigate and negotiate a settlement in good faith. This settlement must compensate the victim for all losses up to the policy limit.

If the carrier refuses to pay a valid claim in a timely manner, the victim can file a lawsuit against the at-fault driver potentially seeking damages beyond the policy limit. If the case goes to trial, the jury may award any amount of compensation it sees fit and is not limited by the terms of the policy.

For example, a claimant who suffered serious injuries in a car accident may have been entitled to $25,000 in compensation if the carrier had agreed to settle for the policy limit. Because the carrier refused to pay the claim, however, the victim may be awarded $100,000 (or more) by the jury after filing a lawsuit. Thus, when an insurance company acts in bad faith in failing to settle a claim, the insured suffers not just the covered loss but the risk of having a large financial judgment entered against them.

The bad faith claim belongs to the insured rather than the claimant (and is usually brought after a judgment is entered for the plaintiff’s injuries), though it’s common practice for the insured to assign the bad faith claim to a victim/plaintiff in exchange for an agreement not to pursue a judgment against the insured for any deficiency.

Examples of Insurance Company Bad Faith

There are a variety of ways that an auto insurance company can act in bad faith. Regardless of the situation, the burden of proving bad faith lies with either the insured or the injured third party who has been assigned the claim.

Unnecessary Delays in the Handling of Claims

If you’ve been injured in a car accident, expenses can pile up while you’re waiting for a check from the insurance company. You may be dealing with hospital bills, ongoing treatment costs, and lost wages or be unable to replace your car. However, the insurance carrier may drag out the claims process to avoid payment, hoping that you may give up.

When the insurance company delays handling your claim, it not only impacts your life but can also affect the strength of your case. Over time, evidence that’s necessary to prove your claim may diminish or be lost. Some evidence may even be tampered with or destroyed.

For these reasons, the insurance company is obligated by law to address claims in a timely manner. Typically, an injured party will formally demand compensation within a specified time frame. If the insurance company fails to respond before the deadline, it may be held liable for acting in bad faith.

Before finding bad faith, the court will consider the circumstances to determine whether the time limitation was sufficient to allow the carrier to complete its evaluation and respond to the offer. For example, if you send the insurance company a demand with little documentation to support your claim and ask for a response in a few days, the court may find your time limitation unreasonable.

On the other hand, if you send a strong demand package that includes a police report showing liability, medical records documenting your injuries, and evidence of other expenses, a couple of weeks may be considered enough time for the carrier to respond in good faith.

Inadequate Investigation or Refusing to Acknowledge Facts

The insurance company’s duty of good faith and fair dealing requires it to conduct a prompt and thorough investigation into your claim and fully acknowledge relevant facts.

  • Inadequate investigation

When you file a car accident claim, the insurance company must investigate to determine whether it’s valid. In doing so, the carrier must consider all the evidence—not just look for reasons to deny your claim or pay less compensation.

In an adequate investigation, the adjuster should collect documentation and review the facts, injuries, and other substantiating information about the accident and parties involved. For example, if you file a claim seeking compensation for an injury, the insurance company cannot disregard your doctor’s diagnosis unless the adjuster investigates the medical records and has a reasonable basis to dispute the findings (e.g., opinions from other medical experts).

  • Refusal to acknowledge facts

Sometimes an insurance company may refuse to acknowledge facts that are clearly established by the evidence in order to justify a lower payout. However, the carrier is required by law to acknowledge all the facts in the case—even if that means it’s on the hook for a large payment.

For example, if the demand package contains a police report showing that the insured was at fault for the accident but the insurance company won’t accept liability, a court may find the carrier acted in bad faith. The police report can be challenged, of course, but the insurance company’s investigation would need to uncover some mistake or reasonable basis for a different conclusion.

Otherwise, when the carrier fails to acknowledge facts that it is aware of and denies the injured party’s claim, the insured is exposed to the risk of litigation that could result in a judgment in excess of the policy limit.

Refusing to Defend a Lawsuit

When you have an auto insurance policy, your carrier has a duty to defend you against liability claims and must hire an attorney to represent you in a lawsuit. If you injure someone in a car accident, having an insurance company defense means you don’t have to pay the out-of-pocket costs of litigation. When the carrier refuses to defend you without a valid reason, it has breached its duty of good faith and fair dealing.

The mere failure to pay or acknowledge a claim doesn’t constitute a refusal to provide a defense, however. The insurance company may deny a claim for any number of reasons. When the carrier refuses to defend a claim or lawsuit, that means it will not indemnify the insured on the grounds that coverage is not required under the policy.

For example, if the at-fault driver was specifically excluded from the insured’s policy, the carrier may argue it has no duty to defend a liability claim. If the insured was the at-fault driver but had let the policy lapse, the carrier may also refuse to defend a claim made under the policy.

Because the insurance company is not required to pay for a claim not covered by the policy, an injured car accident victim would have to file a lawsuit against the at-fault driver to recover compensation. Unfortunately, it’s often difficult to collect on a judgment against an uninsured person because they may not have the means to pay it. If the carrier acted in bad faith in refusing to provide a defense, however, the insured may pursue a claim against it or assign the claim to the victim to satisfy the judgment.

Refusing to Pay for Losses Covered by the Policy

One of the most common bad faith tactics used by insurance companies is refusing to cover the full cost of the accident. Insurance companies make a profit by taking in more money than they pay out, however, the carrier is obligated by the terms of the policy to fully cover the accident. If it doesn’t, it’s not acting in the insured’s best interest.

Also, if victims are unable to recover all the accident costs, they are left paying these expenses out of their own pocket. To avoid this result, the law provides a remedy. When carriers are only willing to offer less than the claim is worth—leaving the insured financially unprotected— the injured party may seek full compensation by filing a lawsuit.

For example, you file a claim to recover for your injuries and present clear documentation of your medical bills and treatment costs, but the insurance company will only agree to pay half your costs. Assuming your costs don’t exceed the policy limit (if they do, the carrier must agree to pay up to the limit), a court may find that the carrier acted in bad faith and award you an amount far greater than you could have received at settlement.

Refusing to Make a Timely and Reasonable Settlement Offer

When an insurance company refuses to make a reasonable settlement offer in a reasonable time frame, this act can constitute bad faith. As discussed, an injured victim can face financial hardship from mounting bills and other expenses while waiting for a settlement check. Thus, the insurance carrier is obligated to respond to the victim’s settlement demand in a timely manner and accept the demand unless there’s a valid reason for rejection.

If the insurance company intends to settle a claim based on a time-limited demand, it must respond with an unconditional acceptance within the time allowed. If it responds with an offer that includes different conditions or a different compensation amount, the response is considered a counteroffer. During settlement negotiations, the parties may go back and forth like this for a while if they disagree about liability or damages, delaying an agreement that compensates the victim.

If extended negotiations are clearly a stall tactic or designed to get the victim to accept a lowball offer, the court may find bad faith. However, the carrier may have a legitimate basis for denying liability or refusing the victim’s compensation demand if it’s acting on a reasonable belief based on a fair investigation of the accident.

For example, if the police report didn’t indicate who was at fault for the accident and the parties’ investigations had conflicting results, there could be a reasonable dispute about liability. Because Georgia is a comparative negligence state, the drivers can share responsibility for the accident, and a claimant cannot recover damages if they were at least 50 percent at fault.

In this example, the claimant’s investigation may indicate the insured was largely at fault, but the insurance carrier’s investigation found the drivers equally responsible. As long as the carrier’s investigation was adequate, it’s not acting in bad faith in denying liability.

Unreasonable or Outlandish Interpretation of the Insurance Policy

Another bad faith tactic that carriers sometimes employ is making unreasonable or outlandish interpretations of the insurance policy. Even though insurance companies have a duty of good faith and fair dealing, they may deliberately misrepresent policy language or interpret policy language against a claimant to avoid coverage.

For example, you have been involved in a car accident and believe you may be partially responsible. But the insurance adjuster tells you that you could be found guilty of insurance fraud if you file a claim when you share negligence. Of course, that isn’t true—you have the right to file a claim even if you were negligent.

When insurance companies make misrepresentations about policy coverage, they are counting on the fact that some people will believe them and not file a claim. Insurance policies use complicated language, and you may feel you don’t have enough knowledge to challenge the adjuster. But you should never give up your claim without talking to an attorney who is trained to recognized when an insurance company is acting in bad faith.

Consultations Are Free at The Millar Law Firm

If you’ve been hurt in a car accident, you should speak to an experienced personal injury attorney about any questions you may have about your claim. Our lawyers know how to recognize when insurance companies are acting in bad faith and will fight their tactics so you can recover full compensation. Call The Millar Law Firm today at (770) 400-0000 or contact us online to set up a free consultation with one of our attorneys.


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