Bad Faith: When Your Insurer Acts Dishonestly

As I discuss here, I recently obtained a $1.5 million jury verdict against Travelers Insurance Company for denying my client’s homeowners insurance claim and for labeling him an “arsonist” after his home was severely damaged by fire. The claims brought against Travelers were for breach of contract and for infliction of emotional distress. Sadly, insurers of all stripes – home, auto, casualty, etc. – often act in ways that run contrary to their obligations under their policies and the law.

Insurance companies are not charities; like other businesses, they are primarily concerned with profits. In order to maximize those profits, they do not always honor the policies they issue, leaving policyholders with no protection and no way to rebuild after significant loss.

When you purchase insurance, you have every right to expect that your insurer will administer your policy and provide coverage in good faith. This is not just a reasonable expectation, it’s the law. When insurance companies fail to live up to their obligations in a dishonest or misleading way, the law refers to this as “bad faith.”

In Connecticut, policyholders can sue their insurers if they act dishonestly in a number of respects when handling claims. These suits can be either common law claims against insurers, or claims under the Connecticut Unfair Trade Practices Act asserting violations of the Connecticut Unfair Insurance Practices Act (which does not provide a private cause of action and can only be enforced administratively by the state Insurance Commissioner).

Examples of Bad Faith

Examples of insurer conduct which can form the basis of a bad faith claim by an insured include:

• Denying that a valid claim is covered
• Only paying partial benefits
• Failure to defend a third-party claim
• Refusing to settle with a third party
• Failing to properly investigate a claim
• Undue delay in claims processing, even if benefits are eventually paid
• Offering an unreasonably low settlement amount
• Cancelling or rescinding a policy in order to avoid paying on a claim

Standards for Determining Bad Faith

It is important to note that not every denial of coverage or incorrect decision made by an insurer will support a bad faith claim. The standard for establishing bad faith under Connecticut law requires more than just a disagreement as to coverage or conduct:

“To prove bad faith, a plaintiff must show that the defendant engaged in conduct designed to mislead or deceive, or that it neglected or refused to fulfill some duty or contractual obligation not prompted by an honest mistake. Bad faith is not simply bad judgment or negligence, but rather it implies a conscious wrongdoing because of a dishonest purpose. Allegations of a mere coverage dispute or a negligent investigation by an insurer will not state a claim for bad faith. Thus, a plaintiff cannot recover for bad faith if the insurer denies a claim that is ‘fairly debatable,’ i.e., if the insurer had some arguably justifiable reason for refusing to pay or terminating the claim.” McCulloch v. Hartford Life & Acc. Ins. Co., 363 F. Supp.2d 169, 177 (D. Conn. 2005).

Additionally, the law can be complicated and nuanced in terms of the evidentiary burdens and factors to be considered in determining whether the insurer acted in bad faith with regard to specific obligations, such as the duty to defend, duty to investigate, or duty to settle. In Connecticut, the law of insurance bad faith is constantly evolving, with decisions handed down almost every year that attempt to clarify, but sometimes muddle, the law in this area.

I consider it a privilege to represent individuals who are being treated unfairly or dishonestly by large corporations, including insurance companies. If you find yourself facing such a situation, please give me a call at (203) 795-1111. I look forward to the opportunity to assist you.

This website has been prepared by Nugent & Bryant for informational purposes only and does not, and is not intended to, constitute legal advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction