Although insurance companies deny claims for many reasons, this does not mean that all refusals to pay benefits are created equal. There are legitimate cases where a loss falls outside a policy’s scope of coverage under a policy. What many policyholders do not understand is that the “why” of a denial can be just as important as the fact an insurer refuses to pay a claim. While some claims disputes are based on legitimate disagreements that are supported by reasonable interpretations of policy exclusions, there are a fair number that are based on tenuous justifications that are virtually indefensible. When an insurer makes an adverse decision on a claim without carefully investigating the loss and circumstances or by relying on a strained reading of the policy, the insurer can be liable for damages beyond the value of an insurer’s claim. Generally, insurance companies have a duty to act in good faith toward their insured. This blog discusses two key issues that policyholders should know about insurance bad faith claims.
While Florida law recognizes both statutory and common law causes of action for third-party bad faith claims, first-party claims must be based on statute.
First-party and third-party bad faith claims can be pursued under Florida statutes, but Florida no longer recognizes common law first-party bad faith claims. Generally, the relevant statutory causes of action are the primary basis for pursuing most bad faith claims in Florida. First-party bad faith claims are based on Fla. Stat. Section 624.155(1), which provides in pertinent part:
(1) Any person may bring a civil action against an insurer when such person is damaged […]
(b) By the commission of any of the following acts by the insurer:
1. Not attempting in good faith to settle claims when, under all the circumstances, it could and should have done so, had it acted fairly and honestly towards its insured and with regard for her or his interests […]
Third parties pursuing a bad faith claim can rely on common law or Fla. Stat. Section 624.155(8). The common law third-party claim is not a separate cause of action, but a right solely derivative of the policyholder’s right. In other words, an insurance company can only be liable for a judgment that exceeds policy limits to a third-party if the insurer has violated its obligation of good faith toward its insured. Our state also does not recognize “reverse” bad faith claims brought by an insurance company against a policyholder.
Generally, insurance companies owe a duty to act with the upmost good faith when adjusting a claim both in interpreting the policy to determine coverage and investigating the claim.
While the law in every state differs somewhat, insurance companies typically are not allowed to place their financial interests over the interests of their insured, to unreasonably delay payment of a claim, or to offer an insured less than the actual value of the covered loss. Insurance companies also are prohibited from relying on deceit or sharp practices when engaged in selling a policy or adjusting a claim. An insurer also cannot act unfairly in handling a claim, so its insured is compelled to retain an attorney to get paid. While these are just a few examples of forms of insurance company conduct that might constitute “bad faith,” these types of acts can entitle an insured to receive more than the full value of his or her loss under the policy.