Insurance Bad Faith

Insurance policies are a contract between the insurance company and the insured.  Like all contracts, the insurance policy contains in implied duty of good faith and fair dealing.  If an insurance company acts unreasonably in handling a claim and thus breaches its duty to act in good faith, it could be liable to its insured for significant damages.

Claims for bad faith breach of insurance contract can arise in first-party and third-party contexts.  First-party bad faith cases involve an insurance company refusing to make or delaying payments owed directly to its insured under a policy in which benefits are directly owed to the insured, such as life, health, disability, property, fire, or no-fault auto insurance.

Third-party bad faith often arises when the insured is the at-fault party, like a driver who caused an accident, and the driver’s insurance company fails to properly investigate the claim or resolve it within a reasonable amount of time.

Insurance Bad Faith

Examples of first-party bad faith practices include unreasonably denying a claim, failure to provide the insured a reason for denying a claim, failure to communicate with the insured, crating unreasonable obstacles to settlement, and delaying or failing to pay a settlement.

Examples of third-party bad faith practices include unreasonable delay in handling a claim, failing to defend an insured, unreasonably denying or limiting coverage, failing to reasonably settle a claim against the insured.

F.A.Q.

If an insurance company eventually pays a claim, can it still be liable?

Yes. Just because an insurance carrier eventually pays a claim does not mean it can’t be held liable for earlier actions such as unreasonable delay or failure to conduct a proper investigation.

Under Colorado law, an insurance carrier that commits bad faith can be held liable under several different claims for relief including breach of contract, the common law tort of insurance bad faith, as well as the violation of several statutes. This allows a plaintiff to not only recover economic damages, but non-economic damages and statutory damages equal to twice the benefit owed, plus attorney fees and costs.

Not necessarily.  If an insurance company undergoes a timely, reasonable investigation and explains its rationale for a value of a claim, it may not have committed bad faith even if the amount if less than what the insured believes is appropriate.  In this situation, an insurance company could still be found to have breached the insurance contract and be made to pay more on the claim, but it would not be liable for the extra damages associated with bad faith.

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