Most states have laws providing for a cause of action for Plaintiffs against first-party insurance companies that conduct themselves in bad-faith. While these claims are not easy to make, they can be a highly effective mechanism to place pressure upon recalcitrant insurance adjusters, and to leverage any underlying tension between the opposing insurance company and their insured, as a personal injury lawyer in Arlington, VA like those at The Law Offices of Ryan Quinn, PLLC, can attest.
Typical of these state laws is Virginia Code § 38.2-510 which established a bad faith action for first-party insureds. A “bad faith” action requires that the Plaintiff establish that the insurance company engaged in an “Unfair Claim Settlement Practice.” Unfair Claim Settlement Practices can include:
- Misrepresentation of pertinent facts or insurance policy provisions relating to coverage ( § 38.2-510(A) (1));
- Failing to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies (§ 38.2-510(A) (2));
- Failing to adopt and implement reasonable standards for the prompt investigation of claims arising under insurance policies (§ 38.2-510(A)(3));
- Refusing arbitrarily and unreasonably to pay claims (§ 38.2-510(A)(4))( bad faith failure to settle within policy limits) ;
- Failing to affirm or deny coverage within a reasonable time after proof of loss statements have been completed (§ 38.2-510(A)(5));
- Not attempting , in good faith, to make prompt, fair and equitable settlement of claims for which liability has become reasonably clear (§ 38.2-510(A)(6):
- 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 (§ 38.2-510(A)(7));
- Failing to promptly provide a reasonable explanation for denial of a claim (§ 38.2-510(A)(14));
Courts typically impose a reasonableness requirement in evaluating bad faith claims, which a claimant must prove by a preponderance of the evidence. See, e.g., Capitol Environmental Services v. North River Insurance Co. 536 F. Supp. 2d 633 (E.D. Va. Feb. 28, 2008)
Key factors in determining whether an insurer is acting in bad faith include whether reasonable minds could differ in the interpretation of policy provisions defining coverage and exclusions; whether the insurer conducted a reasonable investigation into the merits of the underlying claim; whether a denial of coverage is reasonable supported by the evidence; and whether the insurer’s refusal to pay was used merely as a tool in settlement negotiations. See, e.g., Nationwide Mut. Ins. Co. v. St. John. 359 Va. 71 (Va. 2000).
Irrespective of whether a Plaintiff can prevail on the underlying claim, a well-supported threat to pursue a bad-faith claim is often sufficient to force a non-responsive or inattentive adjuster into action, and is therefore another useful weapon in a Plaintiff’s lawyer’s arsenal.