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01/10/2014
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Bad Faith Claims

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Personal Injury

In addition to obtaining the coverage required by state law, the very purpose of purchasing auto insurance is to have security and peace of mind that the coverage purchased will provide both protection against liability and compensation for damages. As with other types of contracts, an auto policy establishes legal rights between the parties to the agreement, and in many cases, such as with bad faith claims, affords legal rights and remedies to persons outside of the agreement as well.

Auto policies, as contractual agreements,  create both duties and obligations of both the insurer and the insured. Pursuant to Florida Law, the relationship between these two parties is referred to as a first-party relationship. However, in cases where these duties extend to parties outside the contract, whether by contract or statute—the relationship between these two parties is referred to as a third-party one. It is important to note that while some duties are solely contractual in nature, others exist as a result of, or in conjunction with, statutory provisions provided under Florida law.

As a general rule, an insurance provider owes a duty to exercise the utmost good faith and reasonable discretion in evaluating an auto accident claim. When an insurer breaches this duty of good faith, the insurance provider can be held liable for their bad faith handling of a claim. Bad faith claims are based upon the duties of an insurer as opposed to duties of an insured. This applies whether the party asserting a claim for bad faith has a first-party or third-party relationship with the insurer.

There are many situations where bad faith claims may arise. When a claim is asserted by a victim against the insurance provider of the negligent party, this is referred to as third-party bad faith claim. When a claim is asserted against the claimant’s own insurance provider, this is referred to as a first-party bad faith claim. Although the legal right to assert a bad faith claim, in terms of having legal standing to assert a claim, was initially limited to third-party claims, legislative reform, occurring within recent decades, expanded its application to include first-party claims.

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Bad faith claims generally fall within one of two categories—either the insurer has acted in bad faith in failing to settle a claim, or the insurer has acted in bad faith by handling a claim in a reckless and/or outrageous way, such as through unreasonable delay or fraudulent conduct. Bad faith claims are evaluated based upon the ‘totality of the circumstances,’ which is nothing more than a consideration of all the circumstances present in a given scenario. Evaluating the totality of the circumstances requires a simultaneously assessment based upon standards of reasonableness. In other words, what is appropriate, required, or necessary, in one scenario, may not be in another.

In considering whether an insurer has acted in bad faith, given the totality of circumstance,  it is necessary to understand concepts of good faith. In addition to the concept of reasonableness, ‘good faith’ involves considerations of fairness, honesty, and due regard for the interests of a claimant. As such, evaluating the presence or absence of good faith also requires consideration of whether the insurer was justified in denying or delaying a claim—this, too, is assessed based upon standards of reasonableness. In other words, given the circumstances, was there reasonable justification for the actions of the insurance company?

There are several scenarios that can provide a basis for a bad faith claim. For example, bad faith claims can arise where a claimant presents a valid claim for injuries to the insurer of the negligent party, and such insurer fails to settle such claim, although the insurer could and should have done so, if they had acted reasonably given the circumstances. In addition, bad faith claims can arise where a claimant has provided written notice to their own UIM insurance carrier of the intent to settle a claim with the negligent party’s insurer, and the insurer either fails to respond within the statutory period, or elects to retain subrogation rights without issuing payment for the proposed settlement amount.

When a claimant succeeds in a bad faith claim against an insurer, the award for damages can be significant. However, in order to assert a claim for bad faith, it is first necessary for the claimant to prove their initial claim. This is because, in order to determine whether an insurer has acted in bad faith, there must be sufficient evidence supporting an absence of good faith. Bad faith claims can be highly complex, and often an unrepresented claimant may not even be aware that an insurer has breached a duty of good faith. Through securing legal counsel, you can ensure that your legal rights and interests are protected to the fullest extent.