When does an insurance company act in Bad Faith?
by Mark Nonni
Under Florida law, all insurance companies have a duty to act in good faith towards their policyholders. These laws protect the homeowners, small business owners, and motor vehicle operators who purchase liability policies by requiring the insurance company to promptly investigate and evaluate all insurance claims made against them. The insurance company is required, when possible, to promptly settle claims filed against the policyholder for an amount that is at or below the insurance contract policy limits.
Additionally, Florida’s laws require insurance companies to protect their policyholders from judgments that are in excess of their insurance contract policy limits, limiting the exposure of their business and personal assets, without which a policyholder might be forced to declare business and/or personal bankruptcy. Because of these laws, you are protected and the injured party will be compensated.
Unfortunately, insurance companies sometimes break the law and act in bad faith. An insurance company acts in bad faith when they refuse to accept a reasonable settlement offer or fail to inform you of the offer in a timely manner. As a result, it exposes you to a court judgment that could far exceed your policy limits. Under a normal insurance contract, when you receive an “excess judgment,” you are “on the hook”- and must pay the full amount over the policy limits out of your own pocket.
However, if you can prove in a subsequent lawsuit that your insurance company has acted in bad faith by failing to settle the claim against you when it could have, and should have, settled, the insurance company, not you, must pay the judgment in excess of the policy limits.
Laws that require insurers and other businesses to act in good faith are good public policy benefiting both policyholders and victims. Policyholders pay premiums to insurance companies to protect themselves legally and financially. They grant insurers the exclusive control over decisions to investigate, evaluate, and settle claims against the policyholder, or, when necessary, litigate on their behalf.
When an insurance company acts in bad faith, it betrays the trust placed in them by their policyholders and exposes the policyholder to the potential of financial ruin. Florida’s bad faith law is the private, free market alternative to additional insurance regulation.