Insurance companies sell trust when they sell you a policy. Because of that relationship, insurers are required to deal fairly and in good faith with their policyholders.

Bad faith involves one if not more of the following elements: fraud, misleading or deception of a policyholder, neglect or refusal to fulfill a duty or contractual obligation, or the conscious doing of some wrong. If found to have occurred, in many states, bad faith exposes the insurance company to significant liabilities, including amounts well in excess of the policy limits or punitive damages.

Much has been written and published to help insurers avoid bad faith. Regardless of these efforts by industry groups, many insurers continue to employ bad faith and/or unfair claims handling practices. And, once some insurers begin to employ these tactics, more often than not, they continue on the course which only exacerbates the problem and further entangles them in the web of liability.

Bad faith and unfair claims handling practices are not only expensive for the insurance industry, but also for the policyholder. In many cases, a claim that could have been resolved early on if good faith and fair dealing was employed, becomes like a snowball rolling downhill -- the problem grows bigger and bigger and the only recourse is taking legal action against the insurer.

Bad faith is much like one legislator's description of pornography: I can't exactly describe it but I know it when I see it. While states will vary depending on statutes, and case law, here are some things to look for to determine if your insurance company has resorted to bad faith and unfair dealings:

The Big Picture

No one single action, in and of itself, will typically constitute bad faith. Instead, look at the insurer's overall conduct and reason for non-payment. The critical evidence here is the insurer's overall response to the policyholder's request for coverage. In other words, the policyholder needs to put requests for coverage, investigations, and prompt adjusting in writing.

	Here are some practices that may arise to the definition of bad faith:
		Wrongful denial of claim
		Unreasonable delay in paying benefits
		Unreasonable cancellation of the policy
		Failure to conduct a reasonable investigation
		Unreasonable demand on the policyholder to contribute to a settlement
		Refusal to diligently pursue post-trial remedies
		Failure to keep the policyholder informed of significant developments
		Failure to advise the insured of a right to arbitrate

Elements of Bad Faith
Depending on your jurisdiction, you will either have to apply "reasonable behavior" to an objective standard or subjective standard. If applying the objective standard, a policyholder need only prove the insurance company acted differently than a reasonable insurance company would have acted in the same or in a similar circumstance. If a subjective standard is applied, the policyholder must prove the non-payment of benefits was done without any reasonable ground for dispute. This second standard is tough to prove because insurance companies can fabricate almost any type of defense for non-payment.

Bad faith can also be alleged against a policyholder, and is usually done so as a defense. Policyholders have a duty to cooperate with their insurance company and any effort made to disallow a claim to be adjusted can only work against the policyholder. The most common examples of alleged bad faith on the part of the policyholder are:

		Refusing to allow adjuster or contractor into home
		Withholding information critical to the adjusting of a claim
		Falsifying documents

Even if you totally disagree with the adjusting practices and experts retained by your insurance company, you must allow the insurance company a chance to either make it right or screw it up. If state law permits, record (without their knowledge) any and all conversations you have with insurance company staff and/or experts. And, make a log of events as they occur. Memory can fade over time and what does not seem important at the time may be a critical piece of evidence later. Document everything you can (audio taped conversations, video tapes of inspections by insurance contractors/experts, keep a log of developments and communicate via certified or faxed letter to adjuster or supervisor) in order that evidence is preserved should you need it later.

Unless otherwise instructed by your attorney, do not withhold information necessary for the proper adjustment of your claim. If consequential damage arises out of an insurance company's action (or delays), be sure to inform, in writing, the insurance company so that they are put on notice. If this information is not made known, you cannot blame the insurance company for further delays. Give them the rope and let them hang themselves.

Do not falsify documents to bolster your side of things. If the facts work against you, do not stoop to such conduct. Rarely do we see cases where the policyholder resorts to fraud but when such conduct arises, it is usually out of retaliation for fraud committed by the insurance company. Again, let the insurance company be the only one resorting to that conduct. They will hang themselves with that rope.

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