What Makes an Insurance Company a Bad Faith Insurer?

Wed Apr 17th, 2024 on     Bad Faith Insurance,    

The concept of insurance is fundamentally based on trust. Policyholders pay premiums with the expectation that insurers will provide financial protection in times of need. However, this trust can be severely undermined when insurers act in bad faith. In Florida, bad faith insurance practices have been a significant concern, impacting thousands of policyholders on a yearly basis. That said, understanding what constitutes bad faith, the legal landscape surrounding it, and its implications is crucial for both consumers and professionals in the insurance industry.

What is Bad Faith Insurance? Our Miami Bad Faith Insurance Attorney Explains.

Bad faith insurance occurs when an insurer intentionally fails to fulfill its obligations to its policyholders. This can involve a variety of unethical actions, including denying valid claims, delaying payments, offering settlements far below the actual value of a claim, or misrepresenting policy terms. In essence, it refers to any action by an insurer that unjustly prevents a policyholder from receiving the benefits to which they are entitled.

What Does Florida Law Say About This Practice?

Florida has various laws designed to protect policyholders from bad faith practices. More specifically, the state recognizes two types of bad faith claims: first-party and third-party.

First-Party Bad Faith: 

This occurs when an insurer fails to honor a claim made by the policyholder directly under their own policy. Examples include denying a homeowner’s claim for hurricane damage or refusing to cover medical expenses under a health insurance policy.

Third-Party Bad Faith: 

This involves claims made by third parties against the policyholder, where the insurer fails to settle the claim within policy limits, exposing the policyholder to excess liability. For instance, if a driver is sued after an accident and the insurer refuses to settle within the policy limits, leading to a larger judgment against the driver.

So, What Can You Do About It?

Florida Statute Section 624.155 provides the basis for filing a civil action against insurers for bad faith practices. Policyholders must first file a Civil Remedy Notice (CRN) with the Florida Department of Financial Services, giving the insurer 60 days to fix the alleged bad faith actions. If the insurer fails to address the issues within this period, the policyholder can proceed with a lawsuit.

A Look at Some Notable Cases and Trends

Several notable cases have shaped the landscape of bad faith insurance in Florida. One such case is Berges v. Infinity Insurance Co., where the Florida Supreme Court emphasized that an insurer’s duty to act in good faith is ongoing and not confined to the specific moments of decision-making.

Trends indicate a growing number of bad faith claims, partly due to increased awareness among policyholders and legal precedents that have clarified the responsibilities of insurers. Additionally, Florida’s vulnerability to natural disasters like hurricanes has led to a higher incidence of first-party bad faith claims as policyholders struggle with insurers over coverage for storm-related damages.

Impact on Policyholders

Bad faith insurance practices can have devastating effects on policyholders. Financially, denied or underpaid claims can leave individuals and families in dire situations, unable to repair homes, pay medical bills, or recover lost income. The stress and uncertainty caused by battling an insurance company can also take a severe emotional toll.

Additionally, bad faith practices can lead to bankruptcy or closure for businesses, especially if they are unable to recover from significant losses due to denied claims. In cases involving third-party bad faith, businesses might face lawsuits and judgments that far exceed their insurance coverage, putting all assets at risk.

Regulatory and Legislative Responses

The Florida Office of Insurance Regulation (OIR) and the Department of Financial Services (DFS) are the primary bodies responsible for overseeing insurance practices in the state. They have the authority to investigate complaints, impose fines, and take corrective actions against insurers that engage in bad faith practices.

Legislative efforts have been made to strengthen protections for policyholders. For instance, recent reforms have aimed at increasing transparency in insurance claims processes and ensuring more stringent penalties for insurers that engage in bad faith. These reforms seek to create a more balanced environment where policyholders can feel secure that their legitimate claims will be honored.

Is There a Way to Prevent and/or Address Bad Faith Acts?

Policyholders can take several steps to protect themselves from bad faith practices:

  1. Understand Your Policy: Carefully read and understand the terms and conditions of your insurance policy. Know what is covered, the limits, and the exclusions.
  2. Document Everything: Keep detailed records of all communications with your insurer, including emails, letters, and phone calls. Document the damage or loss thoroughly with photos, videos, and receipts.
  3. Timely Claims Filing: File claims promptly and provide all required documentation to avoid any delays or excuses from the insurer.
  4. Seek Legal Advice: If you suspect bad faith, consult with an attorney who specializes in insurance law. They can provide guidance on your rights and the best course of action.
  5. Use Mediation Services: Florida offers mediation services through the DFS to help resolve disputes between policyholders and insurers without going to court.

Speak with a Knowledgeable Miami Bad Faith Insurance Attorney Today

Bad faith insurance practices undermine the fundamental purpose of insurance, which is to provide security and peace of mind. In Florida, the prevalence of such practices, particularly in the aftermath of natural disasters, highlights the importance of robust legal protections and regulatory oversight. While legislative and regulatory efforts continue to evolve, it is crucial for policyholders to be proactive in understanding their rights and taking steps to protect themselves from unscrupulous insurers. Through awareness, documentation, and legal recourse, policyholders can ensure they receive the benefits they are entitled to and hold insurers accountable for their obligations. Contact our office today to discuss the specifics of your case.

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