Insurance Bad Faith
When Insurance Companies Unreasonably Refuse to Pay Claims in North Carolina
In addition to meeting their contractual obligations, Insurance Companies and Insurance Agents have to act fairly and in good faith when dealing with their clients. When they don't, plaintiffs are not limited to breach of contract claims alone when battling an insurance company. When seeking more then breach of contract damages, Plaintiffs rely on two sources of law:
First, North Carolina Courts have developed a body of precedent related to liability for wrongful conduct in the form of "bad faith" claims; and
Second, the North Carolina legislature has enacted the Unfair Claims Practice Statute, which when used in conjunction with North Carolina's Unfair and Deceptive Trade Practice Act, can lead to a recovery for triple damages in addition to attorney's fees.
What is "Bad Faith"?
In order to understand "Bad Faith" it helps to recognize what North Carolina Courts has described as "Good Faith". In 2003, The North Carolina Supreme Court defined "Good Faith" to mean:
"…an equitable concept premised on honest belief and fair dealings with another. Failure to act in good faith implies that an offending party's conduct will preclude another person from obtaining a benefit to which that person is entitled."
In typical cases, in order to prevail on a bad faith claim, a Plaintiff must prove that there was:
- A refusal by the insurance company to pay after recognition of a valid claim;
- That they did so in "bad faith"; and
- "Aggravating or outrageous conduct."
The remedies available in "Bad Faith" cases can be quite high and can include, amounts in excess of the policy limits, punitive damages and other consequential damages.
A Second Possibility for Recovery:
Statutory Unfair Trade Practices - NCGS Chapters 58 and 75
A second theory of recovery for inappropriate handling of claims by insurance companies is derived by Statute. Unlike "Bad Faith" claims, the insurance company cannot rely on "good faith" to bar a claim of "unfair and deceptive trade practice." No showing of "bad intent" is required as long as the offending act is like one listed in the statute. For example, the North Carolina Legislature has set forth a list of unfair claims settlement practices that include:
- Misrepresenting pertinent facts or insurance policy provisions relating to coverages at issue;
- Failing to acknowledge and act reasonably and promptly upon communications with respect to claims arising under insurance policies;
- Failing to adopt and implement reasonable standards for the prompt investigation of claims arising under insurance policies;
- Refusing to pay claims without conducting a reasonable investigation based upon all available information;
- Failing to affirm or deny coverage of claims within a reasonable time after proof-of-loss statements have been completed;
- Not attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear;
- Compelling insured to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in actions brought by such insured;
- Attempting to settle a claim for less than the amount to which a reasonable man would have believed he was entitled;
- Attempting to settle claims on the basis of an application which was altered without notice to, or knowledge or consent of, the insured;
- Making claims payments to insureds or beneficiaries not accompanied by statement setting forth the coverage under which the payments are being made;
- Making known to insureds or claimants a policy of appealing from arbitration awards in favor of insureds or claimants for the purpose of compelling them to accept settlements or compromises less than the amount awarded in arbitration;
- Delaying the investigation or payment of claims by requiring an insured claimant, or the physician, of either, to submit a preliminary claim report and then requiring the subsequent submission of formal proof-of-loss forms, both of which submissions contain substantially the same information;
- Failing to promptly settle claims where liability has become reasonably clear, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage; and
- Failing to promptly provide a reasonable explanation of the basis in the insurance policy in relation to the facts or applicable law for denial of a claim or for the offer of a compromise settlement.
Some of the typical scenarios we see are:
- Insurance companies who fail to pay property, casualty, builder's risk, commercial general liability, or life insurance claims.
- Cases involving Underinsured Motorist Coverage (UIM) or Uninsured Motorist coverage (UIM).
- Improper settlement techniques.
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