How Insurer Delays in Claim Processing Can Amount to Bad Faith

Insurance companies are subject to an implied covenant of good faith and fair dealing in their handling of claims over losses suffered by insureds. Failure to act reasonably can be considered bad faith, for which a company can be held liable for damages. Bad faith can take many forms, such as inadequate investigation, misrepresentation of policy terms and offering settlements far less than what a claim is worth. However, one of the most common types of bad faith is purposeful delay.

An insurer has duty to conduct a full, fair and prompt investigation of every claim. However, insurance adjusters might drag out the investigation or evaluation of the claim as a tactic to impel the claimant to give up. Delays can severely impact policyholders, often exacerbating their financial harm.

For instance, an insurer might receive a claim after a policyholder suffers a house fire. The policyholder needs the insurance payout to begin repairs and secure temporary housing. However, the insurer might drag out the investigation process, repeatedly asking for unnecessary documentation or failing to send an assessor in a timely manner. Weeks or months could pass, leaving the policyholder in a precarious living situation and mounting debt from out-of-pocket expenses.

Another example could involve a car accident where the policyholder requires funds for vehicle repairs and medical expenses. The insurance company might acknowledge receipt of the claim but then delay the evaluation process under the guise of 'complexity of the case' or 'pending reviews by multiple departments.' Such tactics frustrate the claimant, who is dependent on the insurance payout to recover physically and financially.

These delays can be deliberate, aimed at pressuring policyholders to accept lower settlements out of desperation or to abandon their claims altogether. This exploitative strategy leverages the financial and emotional strain on policyholders, who may be dealing with injury, loss of income or other hardships.

An insurer bad faith victim can file a lawsuit to recover damages from their insurer. Courts may award the original amount of the claim and extra damages for consequential financial losses related to the delay. For example, if a delayed claim results in a policyholder paying out-of-pocket for medical treatments, these additional expenses could be recovered. Emotional distress damages are also a consideration, compensating for the psychological impact of living through uncertainty and instability due to the insurer's delays. In addition, punitive damages may be awarded if the insurer's actions are found to be particularly harmful or malicious. These serve as a financial deterrent against future unethical behavior by the insurer. Importantly, the claimant can also recover their attorneys’ fees.

The attorneys of Pulverman & Pulverman, LLP in Santa Barbara represent injured parties throughout southern California who are victims of insurer bad faith, helping them get the compensation they deserve. Call us at 805-962-0397 or contact us online to schedule a free consultation.