Practice Areas

A primer on insurer liability for bad faith treatment of insured parties

Every insurance contract implies that the insurance carrier has the duty to handle claims in good faith

Insurance companies must take seriously their duty to handle the claims of their policy holders in good faith. The failure to do so in Ohio could expose an insurance company to potentially expensive liability for damages to a policy holder in a bad faith insurance lawsuit.

Those damages could include compensatory losses from the bad faith behavior, punitive damages to punish the insurer and legal fees and costs.

It is important that employees, adjusters and agents of an insurer are all well trained to handle claims in good faith to protect the company from bad faith liability. Legal counsel with experience in defending insurance companies and their employees against claims of bad faith can provide detailed advice about what constitutes good faith in claims handling.

When an insured party alleges that an insurance company has handled a claim in bad faith, an experienced insurance defense attorney can evaluate the assertion and provide advice for potential response. If necessary, counsel will assist with negotiation toward possible settlement or vigorously litigate the matter in court if settlement is not possible.

Bad faith in insurance claim handling

An insurer's duty to handle claims in good faith is rooted in the superior commercial power of an insurance company as compared with its individual policy holders, creating a special relationship based on the unequal bargaining power of the parties. Insurance bad faith claims are based on a tort liability separate from any liability in contract.

Ohio law requires that in both first- and third-party claims, insurers process and pay claims in good faith.

Many Ohio court cases have elaborated on this duty, establishing extensive case law on the subject. Generally, bad faith on the part of an insurance company refers to unreasonable behavior. In a first-party claim, when an insured party files a claim for an insured loss, bad faith can be exhibited by excessive delay in processing, failure to communicate or refusal to pay when liability for the claim is reasonably certain.

In a third-party claim, when a third party sues an insured party and the insurance company has the duty to defend the insured party in the lawsuit, the insurer could display bad faith by refusing to defend its insured or to accept reasonable settlement of the claim within the limits of the policy.

The attorneys of Bonezzi Switzer Polito & Hupp Co. L.P.A. with four Ohio offices and an office in St. Petersburg, Florida, defend insurance companies, their adjusters and agents against bad faith claims and lawsuits throughout both states.