Q: What is insurer bad faith?
A: Every insurer owes its policyholder a duty to act in good faith in the handling and payment of claims. This duty is inherent in every insurance contract and is based upon the relationship between an insurer and its policyholder. “Bad faith” occurs when the insurer violates its duty to handle and pay its policyholder’s claims in good faith. In Ohio, bad faith claims are independent tort claims that can give rise to damages beyond those available for breach of contract.
Q: My insurance company denied my claim, so is it liable for bad faith?
A: Maybe, but maybe not. Failure to pay a claim alone does not amount to bad faith. Rather, an insurer acts in bad faith if it refuses to pay your claim without reasonable justification. If the facts and law at the time of the denial are fairly debatable, the insurer’s denial may be reasonably justified. But if the insurer’s assessment of your right to coverage was arbitrary and capricious, its denial may not be reasonably justified.
Q: My insurance company ignored my claim for months. Is it liable for bad faith?
A: Possibly. Your insurer must promptly and reasonably investigate and respond to your claim. An insurer that performs inadequate or no investigation, or that delays investigation, can be liable for bad faith. Prolonged or duplicative investigation (for example, if an insurer delays by repeatedly asking for the same information or otherwise delays the investigative process) can also be bad faith conduct. Also, an insurer that engages in harassing, oppressive or exploitative conduct can be held liable for bad faith.
Q: My insurance company eventually paid my claim, but only after a long delay, repetitive requests for information, and several misrepresentations about my rights. Do I have a bad faith claim?
A: Yes, you may. In Ohio, unlike many other states, an insurer can be liable for bad faith claims handling even if it ultimately pays the claim.
Q: I was in an auto accident and the responsible party’s insurance company will not pay the claim, even though it is clearly covered. Can I assert a bad faith claim against that insurance company?
A: No. The duty of good faith arises from the contractual relationship between an insurer and its policyholder. Because you do not have a contractual relationship with the responsible party’s insurer, generally you cannot assert a bad faith claim against that company.
Q: Can an insurance company make a claim for bad faith against me?
A: No. An insurer may deny your claim, but it cannot sue you for bad faith.
Q: What do I get if I successfully assert a bad faith claim?
A: A policyholder with a successful bad faith claim may recover compensatory damages (all damages flowing from the bad faith conduct, including attorneys’ fees), prejudgment interest if the statutory procedures are followed, punitive damages if the insurer acted with malice (ill will, hatred, or conscious disregard for your rights), as well as litigation costs and damages for emotional distress.
This “Law You Can Use” column was provided by the Ohio State Bar Association. It was prepared by attorney Jodi Spencer Johnson of the Cleveland firm, Thacker Martinsek LPA.