Insurance Recovery Law: A Real Example of Bad Faith Conduct

On the Miller Friel Insurance Coverage Blog, Miles Karson previously discussed many aspects of bad faith claims and how corporate policyholders can utilize bad faith claims to their advantage to level the playing field with their insurers.  In today’s video, Miles provides a practical, real world example of how an insurer’s bad faith conduct played out for one of Miller Friel’s clients.  In this particular case, the insurer engaged in bad faith conduct in each of the three stages of the insurer-policyholder relationship: (1) the underwriting process, (2) the claim investigation/evaluation, and (3) the coverage determination.

This is an example of how far reaching and harmful an insurer’s bad faith conduct can be – where the insurer deprives its policyholder of the very security for which it bargained for and exposes its policyholder to the very risks from which it sought protection.  This is the essence of bad faith conduct.  In addition, this video points out some of the intricacies of bad faith law, the necessity of knowing a policyholder’s potential bad faith claims and remedies at the onset of a claim, and the importance of understanding and analyzing the insurer’s conduct at each stage of the insurer-policyholder relationship.

Having analyzed and litigated bad faith claims in numerous jurisdictions, Miller Friel is uniquely equipped with the experience to identify potential bad faith claims and to integrate bad faith claims into an overall insurance recovery strategy.

If, after watching, you have any questions about your own coverage, please give us a call at 202-760-3160.

 

Here is a transcript of the video:

A real life example dealing with three types of bad faith conduct recognized under Arizona law.

So we actually had the opportunity to handle a real life example of a case that touches on all three types of bad faith, recognized under Arizona law. Bad faith in the underwriting process, bad faith in the claims investigation and bad faith in the wrongful denial of coverage.

In this case our client made known to the insurer and underwriting process it’s expectation of coverage going forward and that means what type of risks it expected to be covered and what kind of claims expected to be covered and knowing this the insurer made no representation to the contrary. It gave the impression that yes those types of claims would be covered.

So low and behold the company get sued and submits a claim to the insurer. After a lengthy “evaluation process” the insurer after hires outside coverage counsel, sends the client a letter saying, sorry you don’t get coverage for this type of claim, much to the astonishment of the client and the client insurance broker because they thought that they had coverage for this exact type of claim.

During the claims evaluation process conversations were held, letters were written between the client and the insurer in an attempt to reverse the claim denial. During the claim handling process even after the denial, the insurer was told that their position was in contradiction to the underwriting intent and that they needed to review the underwriting files and speak to the underwriter. To have a better understanding of what was to be covered by the policy. Unfortunately the insurer did not do that, that in and of itself is a form of bad faith.

Second is that they stood by their denial without going back and looking at the underwriting intent and the underwriting file to determine what was intended to be covered and what the policy holder’s expectation of coverage was. So hear you have bad faith in all three phases of the insurer and policyholder relationship. You have an insurer during the underwriting process either 1) being silent when it knows that it’s going to deny coverage for certain types of claims or 2) actively misrepresenting the type of coverage that is being provided by their policy. And the second stage you have an insurer that is unwilling to do an adequate and thorough investigation of a claim. They’re not even willing to pull their own underwriting files and talk to their own underwriter to determine their intent. They are siloing the claim process by itself and walling it off from the underwriting.

And three as a result of the bad faith in the first two incidences they are wrongfully denying coverage of the bad faith as well.

So when you have bad faith in any of these phases the question as well then what’s the remedy. And again this is state-by-state specific but you can look at torts damages and those come in in a number of ways. But really you can look at it what does it really mean and in most cases it’s going to be consequential damages and that can include your attorney fees to file a lawsuit to enforce your rights under the policy. That can include if it’s a property damage case, a business interruption case and a consequence all damages as a result of you not having use of your property. It can also include punitive damages to punish the insurer for its bad-faith conduct.

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