What Is A Bad Faith Lawsuit?

Posted July 14, 2015

An agreement between an insurance company and a policyholder is a contract. In every contract of insurance, there’s an implied covenant that the insurer will exercise good faith and fair dealing with its policyholder. That means that the insurer won’t do anything to impair the policyholder’s ability to obtain benefits under the contract. Should the policyholder believe that the insurer has violated that implied covenant, they can bring a lawsuit against the insurer for breach of contract and bad faith.

Breach of contract

An attorney would probably be remiss if he or she failed to bring a breach of contract count in a bad faith insurance lawsuit. What comes to issue though is that for breach of contract, damages are limited to the amount of the breach. Unforeseeable consequential damages aren’t ordinarily recoverable unless specified in the contract. No insurer is going to avail itself to that kind of exposure though, so their policies provide accordingly.

Bad faith

When the insured person believes that there has been a violation of the implied covenant of good faith and fair dealing, a bad faith count can follow the breach of contract count in their lawsuit. What distinguishes bad faith from breach of contract is that bad faith is a tortious. Different damages are available in tort cases as opposed to breach of contract cases. When an insurance company is held to have acted in bad faith, the policy owner can recover their contract damages along with all other damages incurred by the violation for economic and non-economic losses and attorney fees. If the violation is found to be malicious or fraudulent, punitive damages can be awarded.

Punitive damages

Punitive damages are a fundamental deterring component in American tort law. They punish the liable party and send a message to others not to participate in the same type of conduct. If an insurer’s conduct is held to be malicious, fraudulent or oppressive, the policyholder might be awarded punitive damages. Without punitive damages, insurers can delay a claim or deny it, knowing that it would take an expensive lawsuit to compel them to pay just contractual damages. They operate to keep insurance companies honest.

Most delays or denials by insurance companies are legitimate and not in bad faith. Contact us if you feel that your claim is unreasonably delayed or denied.

Schedule a free consultation online or call The Bennett Law Firms at 405.272.0303 to discuss your legal options with an experienced Oklahoma City lawyer today. No Recovery, No Fee! We will meet with you face to face and can handle cases anywhere in Oklahoma. We can even come to you!