To establish a bad faith claim, several elements need to be present, though the specific requirements can vary by jurisdiction.
Existence of a Contract: There must be a valid and enforceable insurance contract between the policyholder and the insurer.
Duty of Good Faith and Fair Dealing: Inherent in every insurance contract is an implied duty of good faith and fair dealing. This means that the insurer is obligated to act reasonably and honestly in handling claims.
Unreasonable Delay or Denial of Claims: The policyholder must demonstrate that the insurer unreasonably delayed, denied, or underpaid a legitimate claim. This could be due to inadequate investigation, lack of valid reasons, or failure to process the claim in a timely manner.
Knowledge of Coverage: The insurer must have knowledge of or information that would lead a reasonable person to conclude that the claim is covered by the policy. If the insurer lacks sufficient information, it may be obligated to conduct a thorough investigation.
Lack of a Reasonable Basis: The insurer's decision to deny or delay the claim must lack a reasonable basis. This means that there must be no legitimate justification for the insurer's actions.
Intent or Knowledge of Wrongful Conduct: Some jurisdictions may require proof that the insurer knowingly or intentionally acted in bad faith. Others may only require a showing of recklessness or gross negligence.
Actual Damages: The policyholder must have suffered actual harm or damages as a result of the insurer's bad faith conduct. This could include financial losses, emotional distress, or other measurable harm.
"Every contract that you or your business enters into should be carefully drafted by a business contract lawyer to make sure all of your rights are protected," says Attorney Andrew Weisblatt.
