What is Bad Faith?

In order to avoid serious financial complications after events including (but not limited to) wrecks, natural disasters, fires, and deaths; we purchase insurance. Insurance is supposed to provide peace of mind.

An insurance policy is a contract – we pay premiums and, in return, the insurance company is supposed to provide compensation and coverage for specified “risks”. Unfortunately, insurance companies are big businesses that sometimes care more about the bottom line than fulfilling contractual promises to individual policyholders. In order to improve that bottom line, insurance companies often look for ways to delay, or even outright deny, payment of legitimate claims.

Insurance companies know that many of us don’t understand or maybe even read the fine print in the lengthy, single spaced policies they send us, so we may not even know we are being taken advantage of when our claim is delayed or denied. We may just assume the insurance company must be right and that our particular claim is not covered for the reasons stated by the insurance company.

When an insurance company delays or denies a claim without a legitimate reason, or breaches the duty of good faith and fair dealing that is implied in every insurance contract in Mississippi, the insurance company is acting in bad faith.

Bad faith claims can arise from any kind of insurance policy, including:

• Life Insurance: The insurance company refuses to pay full policy limits after a loved one passes away. This is especially common on claims under “burial policies” (designed to pay enough benefits to cover a loved one’s funeral) and claims where the insured dies within two years of getting the policy (known as the “contestability period” under Mississippi law).
  • Mississippi law also requires insurance companies to pay interest on life insurance policies in Mississippi from the date of death through the date the claim is paid. Insurance companies often fail to comply with this requirement, which is another example of bad faith.
• Fire Insurance: The insurance company refuses to pay for damages caused by a fire. Often the insurance company will allege the fire was caused by “arson”, however this defense is very difficult for insurance companies to prove. Instead, the insurance company may delay the claim over a period of many months and keep asking the insured to provide more and more personal and financial information, with the hope the insured eventually gives up and refuses to provide any more information. Then, the insurance company denies the claim for the insured’s alleged “failure to cooperate”.
  • Mississippi law requires insurance companies to pay the full insured value if a home is totally destroyed by fire. Sometimes insurance companies ignore this obligation and try to pay less than the amount of insurance listed on the policy, which is also bad faith.
• Homeowner’s Insurance: Most homeowner’s policies in Mississippi are “all risk” policies. That means they provide coverage for any “direct physical loss” to the home, and the insurance company has the burden of proving that any loss not covered was caused by a risk specifically excluded by the policy. Many times, especially in claims involving hurricane or tornado damage, or for claims involving water damage, insurance companies deny claims without actually proving the damage is caused by an excluded risk.
  • Most homeowner’s policies also provide “inflation coverage” so that if a home is completely destroyed, the amount of coverage provided by the policy automatically increases to reflect inflation that occurred between the time the policy was purchased and the time the claim is paid. Sometimes insurance companies don’t tell insureds about this additional coverage (which may be hidden in the small print); other times insurance companies may manipulate the numbers to pay less than is actually owed. These are also examples of bad faith.
• Health Insurance: The insurance company refuses to pay for medical bills or refuses to pre-approve certain medical services that should be covered by the policy.
• Automobile / Uninsured Motorist Coverage: The insurance company refuses to pay for damages to your vehicle or injuries you suffered due to another driver’s negligence, where the other driver was uninsured or did not have enough insurance to cover your injuries, when those damages should have been paid for under the policy.
• Disability Benefits: The insurance company refuses to pay or continue paying under a disability policy even though you are disabled and unable to return to work.
• Failure to Defend: Many insurance policies, such as general liability policies and automobile policies, require an insurer to defend the insured against lawsuits filed against the insured, but insurance companies sometimes wrongfully refuse to provide a defense or even advise the insured that a defense is available.
  • Under Mississippi law, if an insurance company provides a defense under a “reservation of rights” (meaning they are paying for a defense right now but reserve the right to later say there is no coverage and maybe even require you to pay them back for incurred expenses), the insurance company usually has a duty to allow the insured to hire another lawyer, of the insured’s choosing, to advise the insured about his/her rights. The insurance company also has an obligation, in most cases, the pay the other attorney’s fees and expenses. However, insurance companies sometimes refuse to offer to pay for the insured to have his own attorney, or even refuse to tell the insured about that option. This can also be bad faith.
• Ambiguous Language:  Some policies include language that is not clear about whether a particular risk is covered, or not covered. Under Mississippi law, the insurer is required to resolve that question in favor of providing coverage to the insured. Sometimes, the insurer resolves the question in favor of the insurance company, to protect and promote the insurance company’s bottom line.

What is Bad Faith Litigation?

Mississippi law permits insureds to bring legal actions against insurance companies who commit bad faith. Damages potentially recoverable in these cases include:

• The contractual benefits the insurance company should have paid;
• Compensation for the insured’s inconvenience and emotional distress caused by the wrongful denial of coverage;
• Reasonable attorneys’ fees and expenses incurred by the insured in enforcing the insured’s contractual rights; and
• Punitive damages in an amount, determined by a Jury, sufficient to punish the insurance company for its bad faith and set an example to prevent that insurance company, and others, from committing similar misconduct and bad faith in the future.

If you or a loved one feels that an insurance claim may have been delayed or denied in bad faith, or that the insurance company did not pay the full amount of benefits (and/or interest) owed under the policy, call Van Cleave Law. A significant percentage of Mr. Van Cleave’s law practice over the last 20+ years has involved insurance bad faith claims, and Mr. Van Cleave has a passion for making insurance companies honor their obligations to policy holders like you.