What Happens If an Insurance Company Acts in Bad Faith?

Key Points:

  • Whether you’re the insured or an injured third party, the insurance company has a legal duty to exercise good faith when handling your claim.
  • If, after investigating your claim, the insurance company finds reasonably clear evidence of liability but offers less than your claim is worth, a court may find it has breached its duty and acted in bad faith.
  • Examples of insurance company bad faith include unnecessary delays in handling claims; inadequate investigation; refusal to defend a lawsuit; refusal to make a reasonable and timely settlement offer; and outlandish interpretations of an insurance policy.
  • When an insurance carrier acts in bad faith, it may have to pay you damages far beyond the applicable policy limit as well as statutory penalties and attorney’s fees.

Traditionally, insurance companies have a unique status under the law based on the nature of their business—selling the promise of protection. When you purchase coverage from an insurance carrier, that company promises to pay your damages under the terms of the policy should you have an accident. If you’re liable for someone else’s injuries, your insurance policy is meant to protect you from having to pay those expenses out of your own pocket.

Glass on the street after a car accident

Because the carrier’s relationship with the policyholder is based on trust, the law ensures that the assurances and covenants contained in the policy are strictly enforced. That means the insurance company has a legal duty to exercise good faith and fair dealings when handling a claim, regardless of whether it’s filed by the insured or an injured third party.

If the carrier breaches that duty, it fails to protect the insured and exposes them to the risk of being sued by the victim. This failure not only violates the terms of the policy—it constitutes bad faith under Georgia law. Unfortunately, unless you understand the laws governing insurance company bad faith, you may not know how to enforce your rights under your policy. And because a bad faith claim belongs to the insured based on their contractual relationship with the carrier, accident victims should understand how the enforcement process differs for third-party claimants. How Georgia Laws Protect Claimants Against Insurance Company Bad Faith Under Georgia law, an insurance company may be found to have breached its duty if, after investigation, “liability has become reasonably clear and the insurer in bad faith offers less than the amount reasonably owed under all the circumstances of which the insurer is aware.” If it operates in bad faith, an insurance company may be forced to pay financial penalties and/or attorney’s fees in addition to damages.

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.

Under this statute, an insured has a bad faith claim against the carrier if it refuses to pay losses that it owes in a timely manner up to the policy limit, and the insured can seek specified penalties and fees as part of the claim. Note that bad faith claims work differently for injured third parties than they do for policyholders because the duty of good faith is based on the contractual relationship between insurer and insured.

When an accident victim files a claim against the at-fault party’s liability policy, the carrier is still obligated to investigate and negotiate a settlement in good faith up to the policy limit. However, Georgia law allows for much broader recovery in liability claims filed by injured third parties. If the carrier refuses to settle a valid liability claim in a timely manner, the victim can file a lawsuit against the insured seeking damages far beyond the policy limit, and a jury may award any amount of compensation it sees fit.

Because the carrier failed to protect the insured from the lawsuit, the insured would have a bad faith claim against the insurance company based on the judgment. Even though the bad faith claim belongs to the insured rather than the claimant/victim, it’s common practice for the insured to assign the claim to the victim in return for an agreement not to pursue a judgment against the insured for any deficiency.

What Are Examples of Bad Faith?

An insurance company can act in bad faith in a variety of ways. No matter what the circumstances are, however, the burden of proving bad faith lies with either the insured or the injured third party who has been assigned the claim. Some examples of bad faith include:

  • Unnecessary delays in the handling of claims
  • Inadequate investigation or refusing to acknowledge the facts fully
  • Refusing to defend a lawsuit
  • Refusing to make a reasonable settlement offer within a reasonable time frame
  • Unreasonable or outlandish interpretations of an insurance policy

These tactics are common in insurance claims, and carriers and adjusters who use them have one goal in mind: to protect the insurance company’s bottom line.

Why Would an Insurance Company Act in Bad Faith? Insurance companies are in the business of receiving and investing premiums—not paying claims. An insurance company’s ideal business model is to collect large amounts of money and pay out as little as possible in compensation. Because most people are unfamiliar with the laws governing insurance company conduct or do not realize the value of their claim, insurance adjusters may try to take advantage of claimants by engaging in stall tactics or offering lowball settlements.

If you feel that an adjuster is giving you the run-around or acting unfairly, stop providing information or trying to negotiate with them. Instead, contact a personal injury lawyer to discuss your claim. An experienced car accident lawyer knows how to deal with tactics used by insurance companies to avoid payment and can negotiate a settlement that provides you full compensation.

Remember that if the insurance company’s behavior constitutes bad faith, you may be entitled to recover additional penalties and fees as well as a higher payment for damages.

An insurance company is ignoring my medical expenses of $5,000. Do I have a case? 

Insurance companies are notorious for offering as little money as possible for personal injury claims. Your claim is not automatically invalid just because an insurance company has not offered to pay for all your medical expenses. That’s where hiring a lawyer is helpful.  

What costs and expenses do insurance adjusters try to avoid paying? 

Insurance adjusters sometimes try to avoid paying lost wages or sometimes anything money above the medical expenses. This is where hiring an attorney will be helpful. 

What Is Needed to Prove a Bad Faith Claim?

Each case is different, and insurance companies can act in bad faith in many ways. In general, however, a claimant must prove the following:

  • The claim is covered by the relevant insurance policy;
  • A valid demand for payment was made by the policyholder or injured third party and not paid in a timely manner (i.e., within a reasonable time frame specified in the demand letter); and
  • The carrier’s failure to pay was negligent or motivated by bad faith.

You and your attorney can build a successful bad faith claim by gathering strong evidence that your settlement demand was valid (i.e., liability was clear and damages were supported by documentation) and the carrier’s failure to pay was unreasonable. Such evidence may include medical records, police reports, witness statements, or records of lost wages. Do Bad Faith Laws Apply to Settlements for Personal Property and/or Injury Claims?

Yes. The laws governing insurance company bad faith include most provisions covered by an insurance policy, including injury claims and damage to vehicles, homes, and other personal property. If you file a claim involving an item or event (injury) covered by an insurance policy, the carrier’s adjuster is required to investigate it in good faith. If the carrier’s investigation was reasonable and its findings indicate clear liability and damages, the adjuster must offer a settlement that fully covers your losses up to the applicable policy limit.

How Can I Avoid Becoming a Victim of Bad Faith?

Never forget that insurance companies are always looking out for their best interests—not yours. If you think you have a valid injury case, especially one involving a serious injury, you should not discuss your claim with an adjuster or anyone else representing the at-fault party’s insurance company without first consulting an attorney. After you file a claim, you will be contacted by an insurance adjuster who will ask you for information about the accident and any evidence you may have. Keep in mind that no matter how friendly or caring the adjuster seems, all calls will be recorded and used as part of the investigation.

If you provide a recorded statement or sign a “release for medical records” without the advice or representation of an attorney, you are inviting the adjuster to find ways to harm your case and reduce the size of your claim. Insurance adjusters are adept at picking apart statements to find small details or inconsistencies that can justify them blaming you for the accident and denying your claim.

And if you sign a release allowing the carrier access to your medical records, it is almost guaranteed that the adjuster will delve into your past medical history to look for some reason to deny or reduce your claim. Remember that football injury in high school 15 years ago? The adjuster may use that information to claim that the knee surgery you need after your recent car accident is actually just a treatment for your old injury—which the insurance company isn’t responsible for paying.

Consultations Are Free at The Millar Law Firm

If you’ve been injured, you should speak to an experienced personal injury attorney about any questions you may have about your claim. Our lawyers know how to negotiate with insurance adjusters and deal with insurance companies that are acting in bad faith. Call The Millar Law Firm today at (770) 400-0000 or contact us online to set up a free consultation with one of our car accident attorneys.

- D. Lo
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