Grounds for Finding Bad Faith
When an insured asks a question of his or her insurer an answer is expected. An insurer should respond to all inquiries promptly, and in no event later than 15 days. If an insured submits a proof of loss to which the insurer has agreed and asks “when can I expect to be paid?” the insurer should respond with specificity, immediately. Most policies and state regulations require payment within 30 calendar days of agreement to the proof of loss. If the question is ignored and payment is not made, after the insurer agreed to the proof of loss, the insurer is breaching the contract and if without good cause, the covenant of good faith and fair dealing. Often, bad faith is merely the difference between courtesy and lack of courtesy.
An insurance company will not be allowed to deny coverage where all the relevant facts were known to the insurer at the outset, but it unreasonably delayed in asserting a basis for disclaimer. An unexplained delay of two months can be found to be unreasonable in disclaiming coverage. When the insurer waited an even longer amount of time, with an unexplained delay of approximately one year, before mentioning two new reasons for disclaimer the court found the insurer’s actions to be unreasonable as a matter of law. [Allstate Ins. Co. v. Gross, 27 NY2d 263, 269-270) and Mendoza v. American Country Ins. Co., 19 A.D.3d 300, 797 N.Y.S.2d 492, 2005 NY Slip Op 5432 (N.Y. App. Div., 2005).]
The insurance adjuster knows better than an insured what is needed to prove a claim. If, for example, the adjuster fails to ask for a proof of loss, documentation to support a claim, or the sworn testimony of the insured at examination under oath, until months after the loss the delay in the request can upset the insured and lead to charges of breach of contract and bad faith.
Failure to demand the proof of loss within the time prescribed, when coupled with other acts calculated to lead the insured to believe that the proof need not be furnished within the prescribed time, is sufficient to show an implied waiver in Georgia. [Condon v. Des Moines Mut. Hail Ass’n, 120 Iowa, 80, 94 N. W. 477. The conduct of the insurer throughout the negotiations shows conduct inconsistent with the contention that the insured failed to promptly submit a proof of loss. [Knights of the Ku Klux Klan Inc v. Fid. &. Deposit Co. Of Md., 169 S.E. 514, 47 Ga.App. 12 (Ga. App., 1933)]
Some insurers keep tight control on their adjusters. Each level of management has limited authority to settle claims. If the person who meets with the insured has no authority and must work his or her way through multiple layers of bureaucracy, delays that upset the insured become inevitable. If the insurance adjuster has adequate authority to settle with the insured or claimant without delay it will not evolve into a bad faith claim.
© 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 firstname.lastname@example.org.
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
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