Insurance Bad Faith Articles
- Q: What Can I Do To Punish The Wrongdoer And To Make Sure This Doesn't Happen To Anyone Else?
- Q: Six Obligations Your Insurance Company Has To You
- Q: Beware Of The Insurance Company’s “Independent” Medical Examination
- Q: Filing A Complaint With The State Of Wisconsin Commissioner Of Insurance
- Q: Does Your Insurance Company Use Software To Minimize The Value Of Your Claim?
- Q: What Is Insurance Bad Faith?
- Q: What is the Wisconsin Unfair Claims Settlement Practices Act?
What Can I Do To Punish The Wrongdoer And To Make Sure This Doesn't Happen To Anyone Else?
A: We are often asked by our clients whether they can punish the insurance company or take actions to make sure the insurance company will not engage in the same conduct toward others. Generally, punishing a wrongdoer in Wisconsin is reserved for criminal cases (cases where a defendant has been charged with a crime). Insurance companies are rarely charged with crimes. But, in limited circumstances, policyholders may be given the opportunity in a civil case to ask that a jury punish an insurer and impose a penalty sufficient to deter the insurance company to refrain from misconduct.
The remedy is punitive damages. These are damages that a jury may award to punish and deter bad conduct by an insurance company (or other wrongdoer). According to Wisconsin law: “The plaintiff (policyholder) may receive punitive damages if evidence is submitted showing that the defendant (insurance company) acted maliciously toward the plaintiff or in an intentional disregard of the rights of the plaintiff (policyholder).” Wis. Stat. § 895.043.
This standard has been the subject of much debate. Policyholders often believe the standard is too difficult while insurers believe it is too easy to meet. Importantly, a judge ultimately determines whether a policyholder may even request punitive damages from a jury. The judge acts as a gatekeeper.
Six Obligations Your Insurance Company Has To You
A: We are often asked what obligations an insurance company has to its policyholders. An insurance company must treat you fairly. There are many things an insurer has to do and many things it is forbidden from doing. We have tried to make a simplified version of the law on this subject and put it together in what we call the Policy Holder’s Bill of Rights setting forth the six key obligations that an insurer has to a policyholder making a claim.
Obligation #1: An insurer must treat its insured’s interests with the same consideration it gives its own interests. This means that a claims adjuster must give the policyholder the benefit of the doubt. The claims adjuster should be looking for reasons to find coverage, not for reasons to deny coverage. The claims adjuster should be looking for reasons to pay the claim, not reasons to deny it. Unfortunately, sometimes insurance companies lose sight of this fundamental rule.
Obligation #2: The claims adjuster has a duty to help the policyholder with the claim. A claims adjuster should help explain coverage and available benefits to the policyholder and to take other steps to help bring the claim to a prompt and fair conclusion. Claims adjusters should not view the process as insurance company versus policyholder.
Obligation #3: The insurer must promptly and fairly investigate every claim. This obligation may best be illustrated by an example. We have handled cases where the claims adjuster for our client’s insurance company, did not obtain medical records, interview witnesses or evaluate the claim in any meaningful way for a period of 2-½ years. He did not promptly and fairly investigate our client’s claim.
Obligation #4: If payment is owed, an insurer must promptly pay the claim. In Wisconsin, an insurer must pay a claim that is owed within 30 days or the insurer may be subject to paying the policyholder 12% interest per year. Even though this is the law, there is no good reason for an insurance company to hold payment for 30 days if it owes benefits under a policy.
Obligation #5: If the insurer denies the claim, it must give an explanation to the policyholder. An insurance company cannot simply refuse payment of a policyholder’s claim without an explanation. A policyholder has a right to know the reasons that payment of a claim is being denied so that he or she can respond appropriately.
Obligation #6: The insurer must disclose significant facts to its policyholder. Throughout its investigation into a claim, the insurer must tell the policyholder about significant facts or circumstances it uncovers. An insurer has investigators and others experienced in the claims process. They are in the best position to conduct an investigation. In fact, if a policyholder takes certain actions or compromises an investigation, an insurer may argue that coverage has been voided. Because of the unique nature of the insurer/insured relationship and the realities of the claims process, an insurance company must disclose significant facts to its policyholder.
Again, insurance companies must treat their insured parties fairly and reasonably. If an insurer violates one or more of its obligations to you, it may have committed bad faith.
Beware Of The Insurance Company’s “Independent” Medical Examination
A: When a policyholder makes a claim for personal injuries with an insurance company, the insurer may have a right to order an “independent” medical examination. In our experience, these exams are often anything but “independent.” Some insurance companies hire the same doctors over and over again to conduct examinations. Doctors are paid handsomely for providing this service. Are you surprised that most often the insurance company doctor offers opinions favorable to the insurance company? There is some truth to the old adage: “He who pays the fiddler calls the tune.”
This insurance industry practice has given rise to a potentially dangerous defense in insurance bad faith cases. Let us explain.
Insurance companies must have a reasonable basis to deny payment of a claim. Insurance companies argue that they have a reasonable basis to deny a claim based upon the opinions of their “independent” medical examiner. In other words, if an insurance company medical expert says that the injured person’s injuries are not related to the automobile accident, but instead to a preexisting condition, insurers may argue they have a reasonable basis to deny the claim.
Wisconsin law does not support this position.
Wisconsin case law recognizes that denying claims solely on the basis of a retained expert’s opinion does not insulate an insurer from bad faith. For example, in Schlussler v. American Family Mut. Ins. Co., 157 Wis.2d 516, 460 N.W.2d 756 (Wis. App. 1990), the Court rejected the idea that an opinion from an insurance company doctor was sufficient to form the basis for denial of a claim.
In Schlussler, the Court explained: “Essentially, American Family argues that when it relies on a medical opinion, no matter how unreasonable, it is protected from any claim of bad faith. We do not agree.” Id. at 528-529, 460 N.W.2d 756, 761.
In that case, the court articulated a two-part analysis to determine whether a jury could find bad faith even with a supportive defense expert opinion. First, the jury could find that the defense expert’s opinion was patently unreasonable, because among other things, the expert did not take into account all relevant information, ignored important information, and/or failed to conduct testing.
The point is that Wisconsin courts have recognized that a biased expert opinion standing alone cannot as a matter of law extinguish a claim for bad faith. This is good news for Wisconsin policyholders
Filing A Complaint With The State Of Wisconsin Commissioner Of Insurance
A: If you feel you have been wronged by an insurance company or its personnel, you can file a complaint with the State of Wisconsin Office of the Commissioner of Insurance (OCI). You can obtain complaint forms at http://oci.wi.gov/com_form.htm. You can also get complaint forms by calling OCI at 1-800-236-8517 or by writing to OCI at 125 South Webster Street, P.O. Box 7873, Madison, WI 53707-7873.
You should know that OCI rarely orders any company to pay a claim, even when the company is clearly wrong in denying a particular claim. Why? OCI has a big job and a limited number of staff. OCI is charged with, among other things, the responsibility of regulating the insurance companies that do business in the State of Wisconsin.
Nonetheless, it still may be worthwhile to file a complaint with OCI. Filing a complaint means that the insurance company will be required to respond. In a small number of cases OCI will seek further information from the insurance company. This may be helpful to you.
In many cases, the insurance company will offer an explanation (excuse) for its behavior. Often, OCI will accept that excuse and not take any further action. If you truly believe the insurance company has behaved inappropriately, you may want to consult an attorney with experience handling insurance disputes.
Does Your Insurance Company Use Software To Minimize The Value Of Your Claim?
A: In many cases the answer is yes. Most, if not all, major insurers use a software program to assist with processing injury claims. There is nothing illegal or unlawful about that. Insurers say that they use these programs to ensure consistent handling of claims.
Are there other motives? Yes – greed!
Let’s look at one example, Allstate. Undoubtedly you have seen the commercials and heard Allstate’s question: “Are you in good hands?” This simple question is designed to persuade you to rush out and buy insurance from Allstate.
I encourage you to read a book titled, From Good Hands to Boxing Gloves: The Dark Side of Insurance, by David Berardinelli. This book details how and why Allstate adopted the use of a computer program known as Colossus. Colossus is a computer program that is giving insurance companies an organized, systematic way to reduce their claims payouts. The book highlights how Allstate has used and continues to use Colossus as a means to reduce claims payouts and increase profits.
Using a computer program for this purpose does not square with existing insurance law. According to one report, Allstate was seeking to reduce claims payouts by a set percentage over a set period of time. What happened to an individual honest evaluation of each and every claim? What happened to paying what is owed? With an honest evaluation, how can the same claims become worth less? What happened to “good hands?”
When buying insurance, I suggest you ask your insurance agent about the claims practices used by your insurance company. Consider asking whether the company uses Colossus or a similar program, the average amount paid per claim over the last ten years, and ask for records concerning satisfaction by customers who filed a claim.
We buy insurance with the hope that we will never have to make a claim. We buy with the assurance that we are protected. You should know when buying insurance whether you will actually be protected in the event of a claim or whether you can expect your insurance company to do everything in its power to minimize its payout to you. Armed with this information you can make an intelligent choice about from whom to buy insurance.
What Is Insurance Bad Faith?
A: The law recognizes consumers’ relationship with their insurance company as a special relationship. It is often called a fiduciary relationship. Generally, this means that the insurer must treat its policyholder’s interests with the same consideration it would give its own interests. Why is this the case? Because when consumers buy insurance they generally: (a) cannot set the terms of the contract; (b) are not in equal bargaining position with the insurer; (c) the insurer agrees to pay the amounts owed under the policy; and (d) at the time a policyholder tries to collect they are generally facing great distress: a wrecked car, a burned out house, or a terrible injury. The law recognizes that under these circumstances it would be fundamentally unfair for an insurance company to take advantage of the situation. Therefore the law sets special obligations as to how insurance companies must treat their policyholders.
Bad faith laws require insurance companies to live up to their end of the insurance contract. Your insurance company has an obligation to deal with you fairly and promptly. If an insurance company does not play by these rules, it may owe you more than the amount of your policy.
There are many ways that insurance companies can commit bad faith. For example, an insurer may fail to promptly and fully investigate your claim. An insurer may choose to delay or deny payment of your claim. An insurer may also use unreasonable interpretations of the policy language so as to limit your recovery or avoid payment all together.
It is important to remember that your insurance company must treat you fairly. If the company does not, you have rights—namely to bring a bad faith claim.
What is the Wisconsin Unfair Claims Settlement Practices Act?
A: When it comes to insurance companies and your insurance policies, do you know your rights? In Wisconsin, the Unfair Claims Settlement Practices Act protects Wisconsin insurance policyholders from deceptive, unjust or unreasonable insurance company actions. Very simply, these laws prevent insurance companies from treating you in an unfair way in order to dodge payments, delay claim processes or shirk other responsibilities.
In many cases, the process of filing an insurance claim in the wake of a fire or other property damage is complicated and chances are that you have not thoroughly read and understood your insurance policy or filed a similar claim in the past. This gives your insurance company a huge advantage over you, as they can and have used policyholders' ignorance of the system to save their own company money. To guard against these wrong and inequitable actions, the Wisconsin Unfair Claims Settlement Practices Act sets clear standards that call for prompt, fair and equitable settlements between insurance companies and claimants.
More specifically, the Wisconsin Unfair Claims Settlement Practices Act states that:
- Insurance companies must fully disclose all benefits and coverages in their customer's insurance policy.
- Insurance companies cannot misrepresent their policies.
- Insurance companies cannot deny a claim based on arbitrary time limits given to customers to prove their loss or property damage.
- Insurance companies must acknowledge your claim promptly after the claim is filed.
- Insurance companies must provide reasonable assistance during the claims process - which includes promptly supplying customers with appropriate forms and clear instructions.
- Just as claims and other communications must be dealt with promptly, all claim investigations must take place in a reasonable amount of time.
- Insurance companies should not enter into settlement negotiations with a claimant who is not represented by an attorney or who is not an attorney.
- Insurance companies cannot send a settlement to a claimant that is less than the total cost of damages unless the customer agrees.
- Insurance companies cannot force you to travel an unreasonable distance during your claims process.
If an insurance company denies or delays your claim, they must give you a reasonable explanation.