OVERVIEW

It is a general rule that every contract implies the exercise of good faith and fair dealing between the parties to the contract -- that neither party will do anything that impairs the right of the other to receive the benefits of the agreement. Good faith simply means that each party places its faith and trust in the other to fulfill the terms of the contract. The failure of either party to fulfill its obligation is referred to as bad faith. Since an insurance policy is a contract, the same general rule applies to insurance policies. The implied covenant of good faith does not arise out of the policy itself, but is a legally recognized principle apart from the policy. 

Bad faith claims can result from an attempt by an insurer to avoid paying a justified claim. They involve an insurance company and its insured and arise out of the handling of the claim. Bad faith can arise from the handling of a first-party claim or a third-party claim. In a first party property claim, it might involve deliberate concealment on the part of the insurer of a coverage that might be available to the insured, or the wrongful denial of coverage. In a third party liability claim, it may involve an insurer's failure to protect the insured by not settling a lawsuit within the liability limits, resulting in a trial verdict for the plaintiff in excess of those limits. The insured would ordinarily be personally responsible for the amount of the verdict or award in excess of the policy limits. 

In a bad faith case, the company's conduct is really on trial, more so than its actual decision or the particular coverage question that might have led to the bad faith claim. Thus, the insurer's claim handling, not the policy itself, is the basis for the claim or suit. In a bad faith claim, the insurer is faced with liability beyond that represented by the policy limits, and because of this, bad faith claims are said to be claims involving extra-contractual liability. 

SOURCES OF BAD FAITH

An insurer can commit bad faith in several ways. They might include:

• failing to promptly and thoroughly investigate a claim
• denying claims or coverage without justifiable reasons
• unreasonably delaying payment
• unreasonably interpreting a coverage provision or
• refusing to settle a claim.

WHAT TO DO WHEN A CLAIM HAS BEEN DENIED OR OTHER BAD FAITH ACTIONS ARE EVIDENT?

Since the issues involved in a bad faith claim are complex, the victim should contact an experienced bad faith litigation attorney immediately.

CONTACT US

DaCorsi & Placencio, P.C.
21031 Ventura Boulevard, Suite 1200
Woodland Hills, CA 91364-2203
Telephone: (818) 884-6666                                                                                            Facsimile: (818) 884-8677 

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