What is Bad Faith and When Does it Apply?

It’s one thing for insurance companies to investigate who caused an accident and inquire about your injuries. It’s another thing for insurance companies to deny liability when the negligence of their client is clear or to refuse to discuss a settlement in the hopes that delay will pressure you into an unfavorable settlement. The insurance companies for the drivers that struck you, the property owners the failed to protect you, and other responsible insurance companies are required to operate in good faith. Their duty to operate in good faith is based on Colorado insurance industry requirements and on Colorado law.

Insurance companies who operate in bad faith deserve to be held accountable for their deliberate misconduct. Accountability means more than just paying the damages they should have paid in the first place. Accountability means that when an insurance company acts in bad faith, it can be ordered to pay your legal fees and statutory damages.

For example, if an insurance company for a driver who rear-ended you contests liability even though in virtually every rear-end collision, the driver in the rear was negligent, you can file a bad faith claim. If your case is worth $50,000 and the insurance coverage is $25,000, an insurance company that acts in bad faith could be ordered to pay:

  • Your legal fees. This means that you will be able to keep the damages instead of paying your lawyer her contingent fee – because the insurance company will be paying your lawyer’s fee
  • Statutory damages. Colorado authorizes two times the covered benefit. In the example, since the insurance coverage is $25,000, the insurance company could be ordered to pay two times the covered benefit – or $50,000. This means you will be awarded all your damages, $50,000, when the insurance company would only have been responsible for $25,000 if it had bargained in good faith.

What insurance misconduct constitutes bad faith?

Insurance companies may be operating in bad faith if any, some, or all of the following conditions apply:

  • Failing to investigate the accident claim or intentionally delaying the investigation.
  • Denying coverage even though it is clear that the insured paid the premiums and the insurance company was responsible for paying damages if their insured was liable for the accident.
  • Making legal claims that have no merit such as arguing that you were contributorily negligent even though you were stopped, in line, waiting for a red light to change when you were struck in the rear.
  • Failing to deny a claim within a reasonable amount of time may constitute bad faith. If an insurance company has a defense, they need to assert it within a reasonable time. They can’t just say we have a defense but we’re not going to talk about it.
  • Making unreasonable demands for documentation. If you broke your leg when you fell on the uneven stairs of a property owner’s property, the property owner can’t seek to know when you saw the dentist last and subpoena the dentist’s records.
  • Not providing information in a timely manner. In the example of the uneven stairs, your attorney has the right to know whether any repairs were made to the stairs and whether any other customers complained about the stairs. If the insurance company refuses to provide that information in a timely manner, they may be liable for bad faith damages.
  • Hiding evidence that your lawyer rightfully requested about the case
  • Making unreasonable settlement offers. If, for example, you have medical bills of $40,000, you treated with your doctors for 9 months, and you lost wages in the amount of $30,000; then any settlement offer less than $70,000 is a bad faith offer – if liability is clear. When the pain and suffering part of your case is included, your case should be worth much much more than $70,000.

Your insurance company has a duty to defend any claims against you.

Which insurance companies can be liable for negotiating in bad faith?

In accident cases, your primary claim is filed against the responsible parties who will likely have insurance. Each of the insurance companies for the defendants has a duty to negotiate in good faith, however, that duty is to the defendant, not to the injured person. So although it often feels like the insurance company is treating you unfairly, that does not create a bad faith claim that you can bring against the insurance company.

Your own insurance company may be liable for negotiating in bad faith in some circumstances. In the car example above, if the insurance company offers you the full $25,000, you’re still short another $25,000. Your uninsured/underinsured (UM/UIM) carrier should pay you for this additional $25,000. If your UM/UIM carrier negotiates in bad faith, our skilled Colorado car accident lawyers will file a bad faith claim against your UM/UIM carrier.

Assert your rights. Call our experienced Colorado personal lawyers today

Accidents are traumatic events. Car owners must have minimum liability insurance coverage. Property owners should have minimum liability coverage. When you’re hurt, you need your medical bills paid. You need to recoup your lost income. You’re entitled to compensation for pain and suffering. If the insurance companies for the people or companies that cause your injuries fail to bargain in good faith, we file claims to hold them accountable for the damages you’re due and the additional damages they should pay because of their failure to play by the rules. To discuss a car accident or any accident, call us today. You can contact me online or call 720-500-2076 for a free, no-obligation consultation. We represent personal injury clients on a contingency fee basis.

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