The Law of Unintended Consequences and Bad Faith – II

Zalma on Insurance – a VideoBlog

I have had some difficulty posting videos to YouTube and have decided to post my videos on insurance, insurance claims, insurance law, and insurance fraud to this site.

Over the last 52 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it for insurers and their claims staff to become insurance claims professionals.

THE LAW OF UNINTENDED CONSEQUENCES AND THE TORT OF BAD FAITH

After the creation of the tort of bad faith, if an insurer and insured disagreed on the application of the policy to the factual situation, damages were no longer limited to contract damages, as in other commercial relationships. If the court found that the insurer was wrong, it could be required to pay the contract amount and damages for emotional distress, pain, suffering, punishment damages, attorney’s fees, and any other damages the insured and the court considered appropriate. It was hoped that the tort of bad faith would have a salutary effect on the insuran

ce industry and force insurers to treat their insureds fairly.

However, when insignificant claims deemed wrongfully denied resulted in $5 million verdicts, “fairness” found a new definition. Juries, unaware of the reason for and operation of insurance, decided that insurers that did not pay claims were evil and punished them, often feeling sorry for the insureds. This happened even when the insurer’s conduct was correct and proper under the terms of its contract. The massive judgments were publicized, and many insurers decided fighting insureds in court was too risky and expensive. If an insured sued for bad faith, regardless of how correct the position of the insurer on the contract, the insurer would often choose to pay to settle.

Most of the massive verdicts were reversed or reduced on appeal. The bad actors raised their premium and lost little business. Other insurers, faced with the massive verdicts, allowed fear to control reason and paid claims that were improper or fraudulent. The extra cost was passed on to all insurance consumers, not to the insurers who acted improperly. The bad actors, in fact, profited. They continued their wrongful acts and paid the few insureds that sued.

Honest and professional insurers paid fraud perpetrators and claims the policy never intended to cover for fear of being painted with the same brush as the bad actors. Those who exercised good faith were punished, and those who dealt with insureds in bad faith profited.

The tort of bad faith, designed to help the innocent, resulted in punishing the honest and professional insurers, rewarding the insurers who acted in bad faith with profit. Also, because of the fear of punishment with bad faith suits, insurers allowed many frauds to succeed rather than face potential tort damages. Contract terms and conditions that were clear and unambiguous were ignored to avoid litigation.

© 2020 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 52 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts

Go to Zalma on Insurance on YouTube- https://www.youtube.com/channel/UCFg7qxC0tVgKcMUqoUfnwPw

Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

Subscribe to e-mail Version of ZIFL, it’s Free! – https://visitor.r20.constantcontact.com/manage/optin?v=001Gb86hroKqEYVdo-PWnMUkV7pkuOtkiv6oakpgK33CNlNAYW-WBlLCOZFtgvpSdcL7R-tsWKfMVqG6fEuvmM7Hh7gUEJ7yKOdgHDbGl_cGAU%3D

Read last two issues of ZIFL here. https://zalma.com/zalmas-insurance-fraud-letter-2/

Go to the Barry Zalma, Inc. web site here https://www.zalma.com/

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