Table of Contents
Types of Insurance Bad Faith
When Your Insurance Company Avoids Its Obligation to Investigate a Claim or Provide Proper Compensation
Like most people, you probably buy insurance to cover some of the bad things that can happen in your everyday life or business, such as:
|Health and Medical Insurance||Life Insurance||Homeowner’s and Renter’s Insurance||Automobile Insurance||Fire Insurance|
|Long-Term Disability Insurance||Business Interruption Insurance||Business Property Insurance||Comprehensive General Liability (CGL) Insurance||Directors and Officers Insurance|
Then, when disaster strikes, you have the necessary coverage to recover from an incident quickly and without financial stress – or at least you think you do. In some cases, our insurance companies will misinform or even mislead us to avoid their obligation to investigate a claim or provide proper compensation. When this occurs, the insurance company is acting in bad faith. Unfortunately, there are instances of insurance bad faith in most insurance arenas. The most common cases include:
- Life Insurance: The insurance company refuses to pay full policy limits after a loved one passes away. This is especially common on claims under “burial policies” (designed to pay enough benefits to cover a loved one’s funeral) and claims where the insured dies within two years of getting the policy (known as the “contestability period” under Mississippi law).
- Fire Insurance: The insurance company refuses to pay for damages caused by a fire. Often the insurance company will allege the fire was caused by “arson”, however this defense is very difficult for insurance companies to prove. Instead, the insurance company may delay the claim over a period of many months and keep asking the insured to provide more and more personal and financial information, with the hope the insured eventually gives up and refuses to provide any more information. Then, the insurance company denies the claim for the insured’s alleged “failure to cooperate”.
- Homeowner’s Insurance: Most homeowner’s policies in Mississippi are “all risk” policies. That means they provide coverage for any “direct physical loss” to the home, and the insurance company has the burden of proving that any loss not covered was caused by a risk specifically excluded by the policy. Many times, especially in claims involving hurricane or tornado damage, or for claims involving water damage, insurance companies deny claims without actually proving the damage is caused by an excluded risk.
- Health Insurance: The insurance company refuses to pay for medical bills or refuses to pre-approve certain medical services that should be covered by the policy.
- Automobile / Uninsured Motorist Coverage: The insurance company refuses to pay for damages to your vehicle or injuries you suffered due to another driver’s negligence, where the other driver was uninsured or did not have enough insurance to cover your injuries, when those damages should have been paid for under the policy.
- Disability Benefits: The insurance company refuses to pay or continue paying under a disability policy even though you are disabled and unable to return to work.
- Third-Party Unfair Claims Settlement Practices Act: The negligent party’s issuer refused to resolve the claim after liability became reasonably clear.
Although instances of bad faith can occur with any type of insurance coverage, each instance will fall into one of two broad categories of bad faith claims. The first is a First Party Claim. This occurs when an insurance company acts in bad faith toward its insured, including failure to compensate the insured for a claim or to deny a claim altogether. The second is a Third Party Claim. A Third Party Claim refers to an instance in which the insured has a claim from a third party and the insurer fails to protect its insured from a judgement in favor of that third party that is over the insured’s limit. As a result, the insured may suffer personal liability for an amount beyond what is covered in their policy.
Bad Faith claims can be filed under common law or as a violation of a state statute, depending on the state in which you are filing a claim.
Common Law Bad Faith
The components of Common Law Bad Faith differ depending on the state in which you are filing a claim. In the state of Mississippi, Bad Faith cannot be found without existing policy coverage. More specifically, “under Mississippi law, a finding of coverage is a necessary predicate to bringing a punitive damages claim.” Sobley v. S. Nat. Gas Co., 210 F.3d 561, 564 (5th Cir. 2000). Then, the insured must prove the following:
- The insured is owed compensation or covereage under their insurance policy.
- The insurance company lacked a legitimate reason for denying the claim, refusing to pay the claim, or failing to follow through on its obligation as detailed in the insurance policy.
- The insurance company’s breach of contract “results from an intentional wrong, insult, or abuse as well as from such gross negligence as constitutes and intentional tort,” as discussed in Essinger v. Liberty Mut. Fire Ins. Co., 529 F.3d 264, 271 (5th Cir. 2008).
If the insured can prove that the insurer is guilty of these three elements, then Mississippi Common Law qualifies the claim as Bad Faith. If, however, the insurance company can provide a legitimate reason for not fulfilling their policy obligation, then bad faith will not be considered. Common examples of why insurance companies fail to meet their obligations include fraudulent insurance claims, lack of coverage for the insured’s filed claim, lack of qualification as a named insured under the policy, or coverage lapse prior to submitting the claim.
Statutory Bad Faith
Statutory Bad Faith is based on state legislature of the state in which you are filing a claim. Although many states have adopted versions of the Unfair Claims Settlement Practices Act(UCSPA), one of the most commonly used statutes for insurance-related activities, Mississippi has not yet done so. Through the UCSPA, states more strictly regulate the actions of its insurance companies. They allow victims of insurance bad faith the opportunity to file suit based on common law or a statute violation, or common law and a statute violation, depending on the situation. According to Mississippi Code. Ann. § 85-5-35, certain acts and practices are considered “unfair competition and [are] thus prohibited,” but no specific statutes have been created for regulation, as determined in Burley v. Homeowner’s Warranty Corp., 773 F. Supp 844 (S.D. Miss. 1990), aff’d 936 F.2d 569 (5th Cir. 1991).
Statute of Limitations for Filing a Bad Faith Claim in Mississippi
According to Miss. Code § 15-1-49(1) (2016) and Miss. Code § 75-2-725 (2016), the statute of limitations for filing a bad faith claim in Mississippi is three years. This means that the insured must file his or her claim within three years of the alleged incident of bad faith. Once three years have passed, the insured may no longer take legal action against its insurance company for its action or mis-action in a claim.
Filing a Bad Faith Claim
Step-by-Step Guide on How to File a Bad Faith Claim
Step One: Review Your Policy and Terms of Contract
Basically, an insurance policy is a contract between you and your insurance company. Before you file a bad faith claim, it’s therefore important to request an up-to-date copy of your policy and terms of contract. This will allow you to determine whether or not the insurance company has made a breach of contract, or failed to meet their obligations as specified in your terms of agreement. As you review, you should ensure that the claim you submitted is fully covered or covered to the extent that you have requested in your claim. Remember: in Mississippi, you must have proof of coverage prior to the date on which you file your claim.
Step Two: Keep Documentation of Your Claim
In case you later file suit for a bad faith claim and must prove your claim’s validity, you should keep documentation throughout every step of your claim. This includes photos, reports, receipts, and any estimates made on the claim. In addition, keep a log of any correspondence you have with the insurance company. Note who you talked to and at what time. Then, if your claim is denied or fails to keep an obligation, you can forward this documentation to a manager at the insurance company to further discuss the claim.
Step Three: Send a Written Letter to Your Insurance Company
If your claim is denied or the insurance company fails to meet an obligation detailed in your policy, draft and send a written letter to your insurance company. The letter must demand that the insurance company complete the claim and explicitly state that you intend to file suit for bad faith if they do not fulfill this obligation. When you mail your letter, document that it was sent with a return receipt.
Step Four: Submit a Complaint to the Mississippi Insurance Department
The Mississippi Insurance Department enforces and regulates all laws related to the state’s insurance industry. So, if your insurance company fails to act within 15-60 days after you send your written letter, then you may file a complaint with this Department. Typically, the Department will attempt to settle your insurance dispute through mediation.
Step Five: File a Bad Faith Lawsuit
Filing a bad faith lawsuit against an insurance company can be rather difficult – but is not at all impossible. First you will need to find an experienced Mississippi insurance attorney to assist you through the process. He or she will help you determine whether you should file suit in a state or federal court, as well as what exactly you should file suit for (negligence, breach of contract, etc.)
Knowing What You’re Entitled To
Insurance Bad Faith Coverage
Although Mississippi has not yet adopted a version of the UCSPA, the state continues to hold its insurance companies to strict standards. This means that if your insurance company is found guilty of acting in bad faith, you may be entitled to damages beyond those detailed in your insurance policy. For example, if the insurer fails to provide coverage after a fire damages your home, you may be entitled to one or more of the following after bad faith has been proven:
- The contractual benefits the insurance company should have paid
- Compensation for the insured’s inconvenience and emotional distress caused by the wrongful denial of coverage
- Reasonable attorneys’ fees and expenses incurred by the insured in enforcing the insured’s contractual rights
- Punitive damages in an amount, determined by a Jury, sufficient to punish the insurance company for its bad faith and set an example to prevent that insurance company, and others, from committing similar misconduct and bad faith in the future.