Is there recourse when your insurance company doesn't have your back?
One of the last things people want to do after an accident is to deal with an insurance company. Most people don't trust insurers, and with good reason.
Insurance companies try to boost their profit by actively investing time and resources into finding legitimate reasons to limit or deny your claim. This means that even when you have a valid claim, the claims process can be excruciatingly slow.
But what happens if an insurance company wrongfully denies your claim or intentionally slows down the claims process?
It's a common misconception that insureds (insurance customers like you) are powerless against insurance companies. If your insurance company is acting unreasonably, you may be able to file a bad faith claim.
What is a bad faith claim?
Insurance companies in Indiana owe a duty to their insureds to act in good faith. This means that your insurance company is required by law to deal with you (the insured) honestly and fairly so that you can receive the benefits of the insurance contract.
In Erie Ins. Co. v. Hickman, the Indiana Supreme Court specified 4 actions that are considered "bad faith" actions:
- Making an unfounded refusal to pay police proceeds (i.e., wrongfully denying a claim)
- Causing an unfounded delay in making payment
- Deceiving the insured
- Exercising any unfair advantage to pressure an insured into a settlement
The list above isn't exhaustive, which means there are other ways that an insurance company can act in bad faith.
Let's look at an example of some actions that might result in a bad faith claim:
Jordan is driving his father's truck in Fort Wayne when he loses control on a muddy road and crashes into a tree. The truck is totaled in the crash and Jordan suffers minor injuries. Jordan files an insurance claim with his father's auto insurance company.
Hoping that Jordan won't read the policy, the insurance company tells Jordan that the policy only covers accidents in which his father was driving.
Jordan reads the policy and learns that he's covered. He argues with the insurance company and, after several months of back and forth, the insurance company finally accepts his claim.
Because Jordan's insurance company wrongfully denied his claim and then caused an unfounded delay before making the payment, the insurance company acted in bad faith.
First-party claims vs. third-party claims
A bad faith claim can stem from a first-party insurance claim or a third-party insurance claim:
A first-party insurance claim occurs when you file a claim with your own insurance company. Consequently, a first-party bad faith claim might be based on your insurance company's unfounded refusal to pay your claim.
A third-party insurance claim involves liability insurance (a policy you purchase in order to protect yourself from claims made by other people). Consequently, a third-party bad faith claim might be based on your insurance company's unreasonable failure to defend you in a lawsuit.
Proving a bad faith claim in Indiana
To establish bad faith in Indiana, you must prove conscious wrongdoing on the part of the insurance company by clear and convincing evidence. In other words, poor judgment and even negligence alone won't amount to bad faith. Rather, you have to prove that the insurance company knew it was doing something wrong and did it anyway.
As the Indiana Court of Appeals put it:
The court pointed out that the insurance agreement was subject to several exclusions, including a pollution exclusion.
The court stated that the exclusion didn't apply to the particular situation, but acknowledged that the scope of the pollution exclusion was an evolving area of law, subject to differing interpretations.
In other words, the court acknowledged that the insurance company didn't know it was wrongfully denying the claim. Or, as the court put it: "An insurance company's incorrect interpretation of the law, alone, is not evidence of bad faith."
Steps to take if you suspect your insurance company is acting in bad faith
Your insurance company may have dropped the ball, but you don't have to. Here are the steps you should take if you want to pursue an insurance bad faith claim:
- Review your insurance contract. If you believe your insurance company is doing something wrong, request your full insurance policy (if you don't have it already) so that you can review it to make sure the issue your having isn't addressed in the policy.
- Maintain a record of every correspondence. Keep all correspondence between you and your insurance company in a safe place. Additionally, keep a log of each telephone call you make with the insurance company (date and time, nature of the conversation, name of the person you talked to).
- Appeal a claim. If you believe you received a wrongful denial, you can request a review. Though the chances the outcome will change are relatively small, it's possible you'll be able to avoid costly litigation by making this simple request.
- Make a demand. If your insurance company is still acting wrongfully, send your insurance company a letter (certified with return receipt requested) explaining that you plan to take legal action if the issue isn't resolved immediately.
- Hire an attorney. Locate an experienced Indiana attorney and schedule an initial consultation. An attorney can settle the matter or file a lawsuit if necessary.
Insurance bad faith statute of limitations
You have 2 years to file an insurance bad faith claim in Indiana. However, your insurance policy might include language that shortens this period of time.
Damages in an Indiana bad faith claim
There are 3 types of damages you can recover in an Indiana bad faith case:
You can recover the amount due under the insurance policy up to the policy limits. For example, if your insurance company improperly denied your $200,000 claim, you can recover the full $200,000 (assuming the amount is under the policy limits).
You can recover any damages that occurred because of the insurance company's bad faith. For example, if you had to rent a car because your insurance company wrongfully denied your car accident claim, you can recover the costs associated with renting the car.
Punitive damages are available if you can prove that the insurance company acted "with malice, fraud, or oppressiveness." Notably, Indiana law caps punitive damages at 3 times the compensatory damages or $50,000, whichever is greater.
Did you know that bad faith insurance law varies by state?
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