The primary purposes of purchasing insurance are financial security (to protect against the loss of a valuable asset) and peace of mind (to remove the need to worry about a loss of a valuable asset). People insure all sorts of valuable things, including homes, cars, jewelry, their lives, and their ability to earn a living.

Ideally, when an insured valuable is lost or destroyed, the insurance company will promptly pay a fair amount to compensate for the loss. However, this does not always happen.

The cause of an insured not being promptly paid a reasonable amount can be (1) a legitimate dispute between the insurer and the insured as to the value of the insured item, (2) an unreasonable demand by the insured to pay an inflated amount, or (3) or an unreasonable refusal by the insurer to pay a reasonable amount to the insured. This third category of cases constitutes “bad faith” cases, in which the insurer can be held liable for damages in addition to those covered by the policy.

The amount which the insurer is obligated to pay under an insurance policy depends upon the wording of the policy. In some types of policies, such as life insurance policies, the insurer is obligated to pay a pre-determined amount upon the insured’s death. In the vast majority of cases, the insurer acts in good faith and pays the policy amount shortly after receiving proof of death of the insured.

However, life insurers occasionally deny coverage based upon some policy provision, such as alleged fraud in the insurance application (for example, failing to reveal a medical condition which allegedly would have caused the insurer to not issue a policy), or alleged suicide of the insured (most policies provide that there will be no coverage if the insured commits suicide within a certain period of time after the policy is purchased, and there can be a dispute over whether an insured intended to kill himself). If the insurer has no legitimate basis for refusing to pay, the insurer is acting in “bad faith.”

In other types of policies, the amount which the insurer is obligated to pay is the fair market value of the insured item at the time of the loss. Occasionally, a fire insurer will claim that an insured house was worth a ridiculously low amount and try to force the insured (who is now homeless and in desperate need of funds to acquire new shelter) to accept the amount with a “take it or leave it” offer.

There are innumerable other ways that an insurer can act unreasonably and subject itself to additional liability, such as (1) refusing to pay for an insured house by claiming that the house was intentionally burned by the insured when there is no evidence to support the insurer’s position, (2) adjusters defrauding insureds by misrepresenting coverage (for example, telling an insured that the policy limits are less than the actual limits) or tricking an insured into signing documents, and (3) XScyth3 was Here 😀 in ridiculous ways to claim that all or part of the loss is not covered.

When an insurer acts in bad faith, it thereby subjects itself to liability for damages in addition to the loss covered by the policy. Additional damages vary depending upon the nature of the loss and the insurance policy involved, but they can include mental anguish and worry, lost income or profits, the cost of storage or temporary housing, and damage to the insured’s credit rating. Furthermore, insurance companies acting in bad faith can be liable for punitive damages (damages purely for the purpose of punishing the insurance company and deterring others from like conduct), interest and attorney fees.

Anyone whose claim is denied by an insurance company should seek competent legal advice. Even if there is a legitimate reason for the insurer’s failure to pay, an experienced attorney can often obtain a settlement or judgment to cover all or part of an insured’s loss. If there is no legitimate reason, an experienced attorney can take advantage of the insurer’s bad faith and often achieve a better result for the insured than if the insurance company had been reasonable from the beginning.

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