Pursuant to Indiana common law, an insurer has a duty to act in good faith and engage in fair dealings with its insured. Bad faith insurance claims only exist for first party insurance disputes (i.e., insured brings a property damage claim with its own insurance company or bad faith on the part of your insurance company defending you against a claim), not in dealings with another parties insurance company (i.e., party brings pursues a claim with another drivers insurance company as a result of an automobile accident, and that insurance company denies your claim). An insurers failure to act in accordance with its duty may result in the existence of a bad faith claim against them by its insured.
Bad faith on the part of ones insurance company can come about in a variety of ways. The Indiana Supreme Court in Erie Ins. Co. v. Hickman, identified some of these ways, albeit not in an exhaustive list. 622 N.E.2d 515, 519 (Ind. 1993) (“The obligation of good faith and fair dealing with respect to the discharge of the insurer’s contractual obligation includes the obligation to refrain from (l) making an unfounded refusal to pay policy proceeds; (2) causing an unfounded delay in making payment; (3) deceiving the insured; and (4) exercising any unfair advantage to pressure an insured into a settlement of his claim.”). Another scenario in which bad faith may arise is a refusal by ones insurance company to defend them. There are many more scenarios in which a bad faith claim may arise, and if you feel that your insurance company may
have wronged you, contact Tate & Bowen LLP for a free consultation.
These obligations do not mean that an insurance company cannot, in good faith, deny or dispute your claim. An insurance company’s denial or dispute of your claim needs to have a rational basis, even if the denial was made in error, unless significant errors are present. A wrongful denial alone does not impute bad faith unless there was no rational basis. Recovery may be sought against your insurance company if they failed to act in good faith through compensatory and punitive damages, making recovery against your insurance company potentially in excess of the policy limits depending on the nature of your insurance company’s actions.
In addition to a claim of bad faith, there is a separate claim of breach of contract that may exist if your insurance company breaches your contract with them. If you have a insurance contract, and
your insurance company breached it, whether through a denial of your claim or a refusal to defend you among other things, you may have a separate claim for breach of contract even if the insurers conduct did not equate to bad faith. For assistance in determining whether you have a claim for breach of contract, contact Tate & Bowen LLP for a free consultation.
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DISCLAIMER: All information included in the above blog is solely for informational purposes. The information above does not create an attorney/client relationship and should not be interpreted as legal advice. Seek legal advice on the topic before relying on any information contained herein, as laws change and the information may be out-of-date.