What Is a Bad Faith Claim?
A Bad Faith Claim is a legal action taken by an insured individual against their insurance company for unreasonably denying, delaying, or partially fulfilling a claim without a valid reason. This type of claim is typically pursued when a person’s claim is rejected, but they believe it should have been covered. It is important to note it is not the bad faith of the client that is in question, but rather the actions of the Insurance company.
According to the American Bar Association(ABA), bad faith claims are meant to investigate misconduct by insurers and include negligent or unintentional fraud. The ABA states, “Bad faith on the part of an insurer is any frivolous or unfounded refusal to pay the proceeds of a policy; it is not necessary that such refusal be accompanied by a fraudulent intent.” These claims can be beneficial because they ensure that policyholders receive the coverage and compensation to which they are entitled, particularly when insurance companies attempt to deny coverage for unjust reasons.
The landmark case of Gruenberg v. Aetna Insurance Co. set a precedent for bad faith action claims and laid the foundation for insurers to act in good faith for their policy owners. Policyholders must know their rights and seek legal counsel if they believe their insurer is acting in bad faith.
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