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Anytime an insurance company wrongfully denies a claim, they are acting in bad faith. The insurance policy between the insurance company and the insured is considered a contract that requires the company to act in good faith. Insurance companies often try to deny a claim for any reason they can or underpay for a claim. The insured’s bad faith needs to be proven by showing how the insurer failed to honor their policy.
There are three types of damages you can recover from in a bad faith case. These three types are contract damages, extracontractual damages, and punitive damages.
Contract Damages– Contact damages are damages representing the amount of the claim that was denied plus interest. For instance, if you had a property loss insurance claim for $50,000 that was denied, the contract claim is that amount plus interest.
Extracontractual Damages– Extracontractual damages are damages to compensate you for any economic loss, emotional distress, and attorney fees. For instance, if you had to borrow money to pay for property repairs that should have been paid by the insurer, you can recover for interest paid on that loan. If the insurer’s action forced you into bankruptcy, you could recover for the damage to your credit, etc.
Punitive Damages– Punitive damages are damages that are malicious, fraudulent, or oppressive. Whereas contract and extracontractual damages are meant to compensate plaintiffs for their loss, punitive damages are intended to punish the defendant for their, especially wrongful conduct. Punitive damages may be appropriate against an insurance company for conduct that is intentionally wrong, such as deliberately concealing a material fact from the insured or for activities conducted with a willful and conscious disregard for the insured’s rights or safety.
In most cases, you will be entitled to both economic and non-economic damages, such as the benefits you are entitled to under the policy and damages such as emotional distress that you have suffered because of the insurance company’s actions and can prove in court. Punitive damages may be available if the insurer’s conduct was particularly egregious, and some jurisdictions allow you to recover attorney’s fees as well.
Bad faith is intentional wrongdoing by an insurance company to save its investors money. Denying a claim without a valid reason is an example of insurance bad faith. If you suspect bad faith, contact a lawyer for a free consultation. You may be able to bring an insurance bad faith claim.