A Deep Dive on Bad Faith

Insurance litigation frequently centers around allegations of unfair claim settlement practices by insurers, often labeled as bad faith. This includes scrutinizing whether insurers complied with state laws and regulations in their claims handling processes. The Unfair Claims Settlement Practices Act (UCSPA), adopted by all states, outlines guidelines for insurers, focusing on key themes like communication, investigation and evaluation, documentation, and resolution. Although a UCSPA violation doesn’t automatically equate to bad faith, it is often used as evidence in litigation.

The duty of good faith and fair dealing is a cornerstone in policyholder lawsuits against insurers, especially regarding third-party liability claims. This encompasses insurers’ responsibilities in defending and indemnifying policyholders. While breach-of-contract claims limit recoveries to policy limits, tort claims against insurers can lead to damages exceeding these limits, including emotional distress or punitive damages. Communication between insurers and policyholders is vital, with state UCSPA laws mandating insurers acknowledge coverage tenders, make timely coverage determinations, and maintain consistent communication.

Investigation and evaluation of claims are critical in determining bad faith, with courts examining the thoroughness and objectivity of the insurer’s process. Adequate documentation in insurer files is crucial, serving as evidence of compliance with UCSPA laws. This includes documenting all communications, claim evaluations, and policyholder interactions. Finally, the resolution of claims is often the focal point in bad faith litigation, scrutinizing whether insurers’ settlement offers are based on objective criteria and reasonable valuations. Adherence to UCSPA guidelines is essential for insurers to demonstrate good faith in their claims handling and defend against allegations of unfair practices.