Boston Area Insurance Bad Faith Claims Attorneys
Practically everyone carries some form of insurance. We buy insurance to protect everything from the lives and health of our loved ones to our homes and automobiles. Most people spend a lifetime purchasing insurance only to never need it. Many types of insurance are purchased for peace of mind. There is comfort in knowing that you will be protected financially in the event of the catastrophic loss or a most random or unforeseeable occurrence. Then there are some forms of insurance that are required by law like automobile insurance in Massachusetts. Then you have other states like New Hampshire that do not require automobile insurance.
When you purchase insurance you are given a promise from the insurance company that they will pay to cover your damages, losses, liabilities, expenses, etc. The promise means the insurance company will (1) review and investigate your claim and loss in a timely manner; (2) the insurance company will assess the value of your claim in a fair and reasonable manner and; (3) the insurance company will pay you the full value of your claim in a reasonable amount of time.
The insurance industry has come under increasing scrutiny over the last decade. Lawmakers, legislatures, judges and the courts are realizing that insurance companies are operating more and more like businesses that are only interested in the bottom-dollar. This bottom-dollar-thinking often leads to the insurance company putting their interests above their insured’s interest or the injured’s interests. More and more insurance companies are actively engaging in practices that seek to maximize profits at the expense of their policyholders or the injured party.
Why Do Insurance Companies Deny or Delay Paying Insurance Claims?
The answer in one word is money. Insurance companies end up making more money the longer they hold onto their money. Lets pretend that that there is an insurance company that pays out $500 Million dollars in claims in a year. If that insurance company delayed paying those claims by 4 weeks it would make around $2.9 million dollars (that’s based a 6% return rate). A five month delay would result in a return of $12,500,000. It can pay to delay.
An insurance adjuster who works for insurance company that publicly trades on the stock exchange is under increased pressure to maximize profits. CEO’s and Boards of publicly traded companies are under extreme pressure to increase the stock price and maximize profits for their shareholders. Underpaying claims or delaying payment on claims are two surefire ways to increase profit and stock price.
Chapter 93A Section 176D of the Massachusetts Consumer Protection Act
The Massachusetts Legislature has enacted consumer protection laws that seek to regulate the claims handling processes/settlement practices of the insurance companies with insurance claims arising in Massachusetts. In 176D the legislature lists the types of behavior that constitute unfair settlement practices and unfair or deceptive acts in the insurance business:
(9) Unfair claim settlement practices: An unfair claim settlement practice shall consist of any of the following acts or omissions:
(a) Misrepresenting pertinent facts or insurance policy provisions relating to coverages at issue;
(b) Failing to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies;
(c) Failing to adopt and implement reasonable standards for the prompt investigation of claims arising under insurance policies;
(d) Refusing to pay claims without conducting a reasonable investigation based upon all available information;
(e) Failing to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed;
(f) Failing to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear;
(g) Compelling insureds to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in actions brought by such insureds;
(h) Attempting to settle a claim for less than the amount to which a reasonable man would have believed he was entitled by reference to written or printed advertising material accompanying or made part of an application;
(i) Attempting to settle claims on the basis of an application which was altered without notice to, or knowledge or consent of the insured;
(j) Making claims payments to insured or beneficiaries not accompanied by a statement setting forth the coverage under which payments are being made;
(k) Making known to insured or claimants a policy of appealing from arbitration awards in favor of insureds or claimants for the purpose of compelling them to accept settlements of compromises less than the amount awarded in arbitration;
(l) Delaying the investigation or payment of claims by requiring that an insured or claimant, or the physician of either, submit a preliminary claim report and then requiring the subsequent submission of formal proof of loss forms, both of which submissions contain substantially the same information;
(m) Failing to settle claims promptly, where liability has become reasonably clear, under one portion of the insurance policy, coverage in order to influence settlements under other portions of the insurance policy coverage; or
(n) Failing to provide promptly a reasonable explanation of the basis in the insurance policy in relation to the facts or applicable law for denial of a claim or for the offer of a compromise settlement.
Types of Insurance Bad Faith Claims
A. First-Party Insurance Claims
These cases involve dealings between and insurance company and their insured. The insured is the person who has entered into an agreement and pays the insurance company to provide them insurance in the event of a loss. These first-party claims arise when and insured goes to their insurance company seeking payment for some form of loss. This occurs in uninsured and underinsured motor vehicle claims, property damage claims and health insurance claims.
The insurance agreement that the insured and insurance company enter into is a contract. Every contract requires both parties to exercise a duty of good faith and fair dealing when working with each other. An insurance company that engages in unfair settlement practices (i.e. delay in paying a claim, underpaying on a claim, bad faith refusal to pay claim) fails to live up to its duty to exercise good faith and fair dealing. This failure is a breach of contract. However, breach of contract actions only allow for a certain amount of damages. However, breach of contract for engaging in unfair settlement practices also constitutes a violation of G.L. c. 93A and G.L. c. 176D. The legislature has stepped in to create stiffer penalties under 176D for unfair settlement practices.
B. Third-Party Claims
There are two types of third-party claims:
1. The first is a third-party claim arising out of the unfair or deceptive acts of the insurance company that results in negative consequences, injury or loss to their insured. This occurs when an insurance company fails to settle a claim for an amount money within the insurance policy limits and then the injured party goes on to get an excess judgment from a court. In that case the insurance company is responsible for the amount of money it provided under the insurance contract and the insured is responsible for the excess or anything over that amount. The insurance company committed bad faith when it exposed its insured to an excess judgment because it failed to settle the claim for the policy limits.
Example: An insured has an automobile insurance policy with a $20,000 policy limit. That means if the insured is responsible for an accident the insurance company will pay up to $20,000 in damages. Now say the insured causes an accident and injuries and the injured party suffers damages that far exceed the $20,000 policy limits. If the injured party offers to settle his claim for the $20,000 policy limit and the insurance company fails to settle the claim for $20,000 and then injured party takes the case to trial and gets a $150,000 verdict the insurance company will be responsible for $20,000 (the policy limits under the insurance contract) and the insured will responsible for the anything in excess of the $20,000 policy limits. In this case $130,000. Now in this case the injured party clearly suffered more than $20,000 in damages. If the insurance company settled this claim for $20,000 the injured party would not have gone to trial and would not have received a $150,000 verdict and, as a result, the insured would not have to pay the excess $130,000. Had the insurance company been looking out for its insured’s interest it would have settled the claim for $20,000 thereby preventing an excess judgment from ever occurring. In this case the insurance company engaged in bad faith when it failed to settle the claim for $20,000 thereby exposing its insured to an excess judgment.
2. The second type of third-party claim occurs when the insurance company engages in unfair and deceptive settlement practices while directly dealing with an injured third-party. In this case the third-party does not have an insurance contract with the insurance company. The insurance company still owes the third-party a duty to resolve his or her claim in a fair and reasonable manner even though there isn’t a contractual relationship. 176D places this duty on the insurance company. The most common cause of third-party bad faith claims is when an insurance company violates G.L. c. 176D, § 3(9)(f) by failing to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear.
Brockton Massachusetts Bad Faith Insurance Lawyer
For a free initial consultation, call our Boston area bad faith insurance lawyers to schedule a free no-obligation case review and consultation at (508) 588-0422 and you will have taken your first step towards getting fair compensation. You can also click here to use our Free Case Evaluation Form.