Bad Faith of the Insurer: Here’s What You Need to Know

When an insurance company is uncooperative or unreasonable, it’s often more than a nuisance. Read our blog to learn what actions may constitute an insurer’s bad faith and how you can protect yourself from it.

Accidents usually entail some kind of financial loss – be it due to repairs to damaged property or medical costs related to an injury. However, if the accident or injury is covered by your insurance policy, you may hope to eventually recover any such losses from your insurance company. In fact, since you make regular insurance payments, you expect your insurer to fully cooperate towards a swift and favorable resolution of your claim. Similarly, if a mishap you experienced was due to negligent behavior of another person, you may file an insurance claim with their insurance company, hoping for fair and unbiased treatment and a reasonable settlement for your losses.

Disappointing though it may be, however, not all insurance companies act with the honesty and good faith you’d expect them to. The truth of the matter is that the best interest of the insurer (to turn a profit) and the best interest of the insured (to get their money back) are often at odds with each other. Realistically, any payout an insurance company makes – either to their own client or to a third party – is simply a loss. That’s why some insurers may at times use dishonest practices to avoid their financial responsibility.

When an insurance company acts dishonestly, they can be held legally responsible under New Mexico insurer bad faith laws. In this article, we will explain what constitutes bad faith of the insurer and what you can do if you’ve fallen prey to an insurance company’s dirty tactics.

What Bad Faith Means

When a person buys an insurance policy, what they really pay for is the insurer’s promise of financial protection in the case of an accident or injury. For that reason, the insurer has a duty to act in good faith towards their clients as well as individuals who file third-party claims. In the law, this is often referred to as the “implied covenant of good faith and fair dealing” and entails acting honestly and treating the other party fairly.

Conversely, if an insurance company fails to promptly and thoroughly investigate a valid insurance claim or demonstrates unreasonableness while processing the claim or payment, they can be found liable for acting in bad faith. Some examples of insurers bad faith may, therefore, include:

• Ignoring a claim by not responding to phone calls, e-mails, letters, etc.
• Trying to intimidate a claimant
• Tampering with evidence
• Failure to conduct an honest investigation of the claim
• Making an unreasonably low settlement offer
• Failure to give specific reasons for a low settlement offer
• Withholding or delaying payment for a valid claim

On the other hand, trying to negotiate the value of the claim proposed by the claimant doesn’t in and of itself constitute bad faith. As long as the insurer’s offers are reasonable and backed up by concrete explanation and evidence, they may still be interpreted as acting in good faith. Moreover, it is important to remember that an insurance company has a much lesser duty toward a third-party claimant. In relation to third-party claims, an insurer could be found liable for acting in bad faith if they engaged in fraudulent activities that could prevent the claimant from pursuing their claim. Examples of such dishonest actions may include tampering with witnesses, withholding evidence or concealing crucial documentation.

What You Can Do If You Suspect Bad Faith

Acting in bad faith is against the law and can warrant a lawsuit against the insurer. If the insurance company is found liable for bad faith practices in the court, they may be obliged to pay damages to the affected claimant. In such a case, apart from the value of the initial claim, the claimant may be entitled to recover attorney’s fees and other litigation-related costs. In some cases, the claimant may also be awarded emotional distress damages.

Before you take any action, you should contact an experienced attorney to discuss your claim.  They can work to gather and evaluate evidence of the insurer’s misconduct. Such evidence may include all the correspondence you’ve conducted with the insurance company and its representatives, including claims adjuster, by phone, email or through other means.

After analyzing your situation and the history of your communications with the insurance company, an attorney will be able to advise you further with regard to your legal options including litigation. If you decide to file a lawsuit against an insurance company acting in bad faith, you should remember that such a lawsuit is different and separate from any personal injury litigation that you may also engage in.