Bad Faith and Unfair Competition

"Insurance Fraud" and "Bad Faith Insurance Practices" are broad terms used to describe the failure of an insurance company to pay fair compensation for a valid claim. It includes lying, deceiving, bad faith, breach of contract and unfair claims practices.

Unless you have recently made a claim or previously experienced how some insurance companies operate, you may not be aware of this problem. You may think: "I pay my premiums, so when I have a claim it will be paid." It doesn't always work that way. Insurance fraud takes many forms. An insurance company may use one of these excuses in refusing to pay a claim:

• your policy canceled for non-payment of a premium
• your loss is not covered under the policy
• you did not comply with the policy terms
• your expenses are unreasonable
• you do not have the correct coverage.

The excuses are endless. The bottom line is the same—insurance companies gladly accept your premiums but are all too often resistant to paying your valid claims.

North Carolina does not typically allow a person other than the person who purchased the insurance policy to bring a fraud or bad faith claim. In other words, someone else's insurance company (i.e. automobile insurance) can treat you any way it wants, and you will have no recourse. However, you can file suit against your insurance company if it acts fraudulently, in bad faith or unfairly. Below are some frequently asked questions and some general answers about insurance bad faith.

What does the duty of "good faith" involve?

The duty of good faith and fair dealing basically means that your insurance company:

• adjusts your claim (either pays it or denies it)
• must cooperate with you regarding the claim (timely respond to your letters and phone calls)
• must tell you in writing precisely why it is denying the claim by specifically identifying each contract term or provision upon which it relies
• must attempt to find a basis to pay the claim rather than find reasons not to pay your claim

Do I owe any obligations to the insurance company concerning my claim?

Yes. You have an obligation to act fairly and deal in good faith. Your obligations include:

• timely paying your premiums
• timely submitting your claim
• providing all information that the insurer is entitled to it under the policy or the law,
• giving a statement under oath; and
• generally cooperating with the insurer regarding the loss

Is there anything in particular I should remember when I am making a claim?

When addressing problems with your insurance company, remember to put it in writing. This includes not only the claim itself, but also all communications with an adjuster.

If you speak by phone with someone at the insurance company, make a written note of it and keep it in a separate file. If someone is rude to you, make a note of what he or she said, his or her name, and the date of the note.

What if the company appears to be simply dragging its feet on my claim?

• put your complaint in writing and send it to the insurer
• know who the claims adjuster is and correspond with him or her in writing.
• ask who the claims adjuster supervisor is and send him or her a detailed and direct letter.

Trying to copy the "president of the company" with your letter probably will not do too much. Copy the "claims supervisor" or "senior benefit analyst" on your letter to the first line claim adjuster. Do what you can first. Send the letter; put it in writing; and ask for written response within a reasonable specified time. Be firm, but be polite and rational. If the foot dragging does not stop, you may need to contact a lawyer.

Can't my insurance agent help me?

Generally, no. An insurance agent sells you insurance. The insurance adjuster "adjusts" your claim. An agent may be of little benefit after you have made a claim. He or she may have some limited authority to resolve a claim, but nothing more. The insurance company does not want personal relationships to interfere with its "adjustment" of your claim.

What about the insurance department?

North Carolina Department of Insurance can be reached by calling (800) 546-5664. However, it cannot follow up on every complaint and often defers action. In most cases, you will be told to hire a lawyer.

Do not wait on the Department of Insurance to proceed on your claim. You may never get a response or the response may not be helpful, and you may have allowed one or more statutes of limitations to expire. A statute of limitations is a time limit within which a lawsuit must be filed. A complaint with the Insurance Commissioner does not postpone the statute of limitations.

I have not read my insurance policy. I am not sure of the amount or extent of my coverage and I am not even sure if my claim is covered. Does this bar my claim?

The insurer has an obligation to act in good faith and conduct a proper investigation of your claim. Can I assert a "bad faith" claim on any type of insurance claim?

No. ERISA Claims under many group insurance policies are preempted by the Employer Retirement Income Security Act ("ERISA"). ERISA applies if your employer "administers" your insurance benefits. ERISA limits your recovery to the value of your claim plus attorneys fees, as set by a Judge. You are also denied the right to a jury trial. As a result, there is initially no penalty for an insurance company to deny or limit your claim. Punitive damages, usually recoverable in a bad faith case, are precluded in an ERISA case.

However, do not take the insurer's mere assertion that the policy is "ERISA regulated" as gospel. Some policies which the insurer claims are ERISA plans are outside ERISA regulation. In such cases, contrary to the position often taken by the insurance company, a bad faith claim with a possibility of extra contractual damages may indeed apply.

Third party

You can sue only your insurance company for bad faith. This is called a first party action. For example, if you are in a car wreck and it is the other person's fault, you will be dealing with that person's insurance company.

No matter how badly the insurance company may treat you, you cannot sue under current law for bad faith in North Carolina.

What if my insurance company tells me my claim is not covered due to a particular provision?

After I have filed a claim, my insurance company offered me a settlement. It looks to me that the offer is too low. What can I do?

My insurance company refused to settle within my policy limits. Do I have to pay the excess instead of the insurance company?

Generally, yes. However, your insurance company owes you a duty of good faith. If you have a policy that has a $100,000 limit, and the injured person received more than $100,000 in a judgment, you are responsible for the amount over $100,000.

The insurance company cannot refuse to settle because it has nothing to lose by letting it go to trial. It should try to protect your rights, not its money. If your insurance company refuses a reasonable settlement offer within the policy limits, the insurance company may be held liable in a bad faith action for all damages you suffer, and possibly punitive damages.

Are there any time limits on my stating a claim of bad faith following the denial of my claim?

The insurer has recently told me over the phone that my claim is being denied. What should I do?

What do i do now?

I cannot afford to pay a lawyer. How can I fight the insurance company with all its money and high priced lawyers?

The good news is that you can fight the big insurers and their legal counsel. There are lawyers, like us, who handle insurance bad faith claims on a "contingency fee basis." This fee arrangement allows you to pursue your case with attorney fees which are based on an ultimate recovery or settlement.

If you believe that your claim has been unfairly denied or that the insurance company has acted unreasonably, do not simply let it go. Pursue your claim and assert your rights. Your actions could benefit not only you, but also others who have been disadvantaged by the large and powerful insurance companies. You can fight and win.

For free answers to your legal questions about bad faith insurance claims, please call us toll-free or complete this convenient online contact form.