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What Is Bad Faith Insurance?

If an insurance company has ever denied your claim outright or given you the runaround instead of paying for the coverage you paid for, you may have wondered whether they were acting in “bad faith.”

Bad faith is an important legal concept that all consumers should understand when dealing with insurers.

In this guide, our bad faith insurance attorneys explain what legally constitutes bad faith insurance practices, when it is most likely to rear its head, how to recognize potential warning signs, what you can recover through a claim, and tips for protecting your rights as a policyholder. If you think your insurance company is acting in bad faith, a lawyer can help.

The Legal Definition of Bad Faith in Insurance

Let’s start with what bad faith actually means in legal terms. Essentially, an insurance company has acted in bad faith if they have engaged in unreasonable claim denials or delays or any other unfair claims handling practices. These actions can show an insurer is putting its own financial interests first rather than prioritizing the needs of the policyholder with whom they have a contract.

In layman’s terms, bad faith occurs when an insurer breaches a contract so badly, it becomes a tort (something that causes harm to a person or property).

However, breach of contract or denial of a claim itself does not automatically equate to bad faith. There has to be evidence the insurer handled the claim unreasonably, perhaps by disregarding facts or the clear terms of the policy. Purposefully failing to further investigate a claim could also demonstrate bad faith.

Other examples we’ve seen that could constitute bad faith include:

  • Misrepresenting the terms, coverage, or costs within an insurance policy
  • Failing to properly investigate a claim before denying coverage
  • Unreasonably delaying communications, claim processing, or resolution
  • Inappropriately attributing partial (or full) fault to the insured
  • Refusing to pay for repairs or replacement expressly covered under the policy

It can be difficult to determine whether an insurance company is acting in bad faith; our attorneys can investigate your interactions to determine whether bad faith actions occurred.

Common Types of Insurance Policies Where Bad Faith Occurs

While unfair claims handling or bad faith can happen with any policy, in our experience, the most frequent cases involve:

  • Homeowners insurance – Denying/delaying claims for storm damage, water damage, fire, etc.
  • Business/commercial policies – Disputing claims for inventory/property damage, loss of income

Insurers often systematically delay or dispute valid claims en masse following major disasters like hurricanes, floods, tornado outbreaks, or widespread wildfires that trigger a spike in claims. Why? Their bottom line. The huge volume of claims at once motivates some insurers to unlawfully save money by denying or delaying coverage through bad faith actions.

This can be especially true with high-value policies, such as those for HOAs and commercial properties.

Policyholders who lack resources or insurance experience may also face a higher likelihood of experiencing bad faith conduct. Some insurers presume these policyholders won’t have the means or knowledge to effectively appeal a wrongful denial or prove bad faith actions. Don’t let this dissuade you from defending your rights and don’t handle this process alone.

Watch For These Warning Signs of Potential Insurance Bad Faith

While an initial claim denial or delay could be innocent, become suspicious of bad faith if you notice a pattern of unfair practices:

  • Repeated requests for information or paperwork you’ve clearly provided
  • A refusal to produce documentation you need
  • Attempts to unreasonably shift blame onto you
  • A refusal to pay for treatments, repairs, or replacements explicitly covered under the policy
  • Delay tactics like extended waits for callbacks, claim investigation updates, or resolution
  • Failing to properly and promptly investigate your claim
  • Threatening you
  • Denying your claim without reason

If multiple examples are present, it likely indicates an insurer is putting profits over your interests, potentially through bad faith actions. Always thoroughly document interactions in writing and keep paper records of correspondence, denials, and policy documents. This builds your case if legal action becomes necessary.

What You Can Recover Through a Bad Faith Claim in North Carolina

If you and your lawyer are able to prove the insurance company acted in bad faith, you can recover:

  • Compensation equal to your original claim
  • Punitive damages
  • Other damages, related costs and fees
  • Attorney’s fees

What to Do If You’re Dealing with an Insurer Acting in Bad Faith

Here are a few tips for protecting yourself if you believe an insurer has acted or is acting in bad faith:

  • Keep detailed records of all communications with the insurer, dates, claim denials, or delays. Document, document, document! Even the smallest interaction could be substantial in your case.
  • Also keep detailed notes about any actions you took to protect your property from further damage (e.g., putting a tarp over a hole in the roof). This can protect you from the insurer claiming you did not help mitigate any damage.
  • Report any significantly unfair claims handling to the NC Department of Insurance. File a formal complaint.
  • Consider mediation through the North Carolina Bar Association before jumping straight to litigation. Less adversarial resolution could be possible. Discuss these options with a lawyer.
  • Remain calm yet persistent if faced with denial or delay tactics. Don’t grow silent or cave to pressure from the insurance company.
  • Contact a lawyer. Bad faith laws in North Carolina are complex. You don’t need to learn a new branch of law, all while trying to fight with an insurer to get your property repaired. Leave the battle to a bad faith insurance attorney on our team.

Taking Legal Action in Response to Bad Faith Insurers

If you have evidence an insurer denied your claim in bad faith, discuss your case with an attorney. You may have the right to sue the insurer for bad faith actions. An attorney well-versed in these types of cases can assess if you have a valid legal claim and chart the best path forward. This could involve settlement negotiations, litigation, or mediation outside the court system.

Here are a few tips for pursuing legal action:

  • Organize a detailed timeline of all related communications, claim denials, and provisions within your policy. Documentation is critical.
  • Research attorneys with experience in bad faith insurance cases specifically. Their knowledge and experience can level the playing field.
  • Be ready to be patient. These cases can take time, but persevere to hold insurers accountable. When you work with a lawyer, they will keep you updated on your case’s progress.
  • Keep composure during the process. Emotions may run high, but letting anger or frustration show up can hinder success.

How a Bad Faith Insurance Attorney Can Help

If you believe an insurance company has wrongly denied your claim or engaged in unfair claims handling, a bad faith insurance attorney can provide invaluable support.

Here are some of the key ways the right legal counsel empowers policyholders:

  • Analyzing whether the insurer is acting in bad faith under state laws
  • Advising on the best strategies and options for your specific situation
  • Demanding internal appeals to the insurer
  • Collecting evidence of misconduct such as records, correspondence, recordings
  • Negotiating for a fair settlement and just compensation
  • Taking legal action against the insurer through litigation if needed
  • Utilizing their knowledge of bad faith laws and experience with previous cases and litigation tactics
  • Alleviating the burden on the policyholder through legal experience
  • Serving as an advocate to counterbalance the insurer’s team
  • Pursuing every dollar in financial damages and penalties under law
  • Making sure an insurance company does not further bully or take advantage of a policyholder

A bad faith attorney has the skills and knowledge to aggressively dispute improper claim denials, delays, and other misconduct. If you sense unfair treatment by an insurer, consult a lawyer.

They can help you determine whether you have a bad faith insurance case and fight for the compensation you need to move on with repairing or replacing your property.

See How Our Bad Faith Insurance Claims Attorneys Can Help You Today

You paid your monthly premiums and upheld your end of the contract. You trusted your insurer with your property. It violated that trust by acting in bad faith. You may feel alone, but you aren’t. We are here for you.

At Whitley Law Firm, our bad faith insurance attorneys have helped numerous clients hold insurers accountable. Let us review your situation and explain your rights in a free consultation today. With legal backing, you can counteract insurer bad faith.

Call us today to learn more: (919) 785-5000. We handle these cases on a contingency-fee basis. You pay us nothing until you recover compensation.