What Types of Compensation Can I Get in a Bad Faith Insurance Lawsuit?

Use these links to jump to different sections:

• Types of Damages in an Insurance Lawsuit 
• Questions for a Bad Faith Insurance Lawyer 

Insurance provides financial protection for losses resulting from illness, accidents, or other unfortunate events. Common types of insurance include: 

• Auto insurance 
• Homeowners’ insurance  
• Health insurance  

In each type of insurance, you have an insurable interest in something–for example, your car or house–for which the insurance company promises to indemnify or compensate you in the event of damage or loss.  

This means that as a policyholder, you pay premiums on your insurance policy and expect your insurance company to reimburse you if you are in an accident or become sick. The specifics of your insurance coverage are spelled out in the insurance contract. 

The process of filing an insurance claim is often a relatively smooth one. Sometimes, however, an insurance company may deny your claim.  

Some claim denials are legitimate. For example, an insurance adjuster may deny your claim because it is beyond your policy limits, or because you waited too long to file a claim, or you did not provide enough information to support your claim. 

Other denials, though, may involve bad faith tactics by your insurance company to avoid paying. If you believe you have a legitimate claim that has been wrongfully denied, you should speak with an experienced attorney about pursuing a bad faith lawsuit.  

Types of Damages in an Insurance Lawsuit 

David B. Ezra, an insurance lawyer at Berger Kahn in Lake Forest, California says that when you bring an insurance lawsuit, you generally have one of the following claims: 

• A simple breach of contract claim based on the insurance company withholding benefits under the insurance agreement  
• A bad faith claim in which the benefits were withheld unreasonably, in violation of the duty of good faith and fair dealing 

The type of claim you bring will determine the sort of compensatory damages you can get in a lawsuit. 

Ezra explains, “If you win a lawsuit and the determination is that the contract was breached, but there was no bad faith, you would get the policy benefits that were withheld”–for example, coverage for home repairs or medical treatment. 

But, he adds, “If you go the next step and establish that the insurance company unreasonably withheld insurance benefits, then you’ve established a breach of the covenant of good faith and fair dealing (or bad faith). In that case, your damages tend to increase.  

“Damages can include, for example, recovery of attorney’s fees and non-economic damages for emotional distress or pain and suffering. All of this would be in addition to the withheld insurance benefits. In some bad faith cases, clients can also get punitive damages, which can be awarded when you prove malicious or fraudulent conduct, generally by clear and convincing evidence.”  

If you win a lawsuit and the determination is that the contract was breached, but there was no bad faith, you would get the policy benefits that were withheld. If you go the next step and establish that the insurance company unreasonably withheld insurance benefits, then you’ve established a breach of the covenant of good faith and fair dealing (or bad faith). In that case, your damages tend to increase.

Steps in the Litigation Process 

After meeting with a lawyer about your situation, they will assess your case and inform you if they agree to represent you. Once you decide to hire them, Ezra explains that the lawyer’s first step is typically sending a letter to the insurance company detailing your claim. 

Depending on where things are in the claims process, this letter may take the form of a demand letter for damages. 

The demand letter accomplishes several things: 

• Provides relevant facts about your claim 
• Explains your claim and why the other party is at fault 
• Lays out what you are seeking in compensation and why 
• Says what you plan to do if the insurance company doesn’t comply 

The next steps will depend on the insurance company’s response as well as the legal process for handling insurance cases established in your state.  

For example, you may use arbitration or mediation to engage in alternative dispute resolution (ADR) with the insurance company. Or you may take the next steps in a lawsuit. Most cases settle at some point in the litigation process before ever reaching court. 

Questions for a Bad Faith Insurance Lawyer 

If you suspect you are a victim of bad faith insurance practices, consider speaking with an attorney about your legal rights and options. Many bad faith insurance attorneys give free consultations for potential clients. Alternatively, they may count consultation fees towards future legal services. Initial consultations let you get legal advice and strategize your next steps. 

To get the most out of a meeting, ask a lawyer informed questions such as: 

• What are your attorney’s fees and billing options? 
• What types of insurance cases do you handle? 
• Do I have a valid claim that my insurance company engaged in bad faith practices? 
• What counts as wrongful denial in my state? 
• What kind of compensation can I get in a lawsuit? 
• Will attorneys’ fees and other legal fees be included in the damages award? 
• What would a reasonable settlement offer be? 

Once you have met with a lawyer and gotten your questions answered, you can begin an attorney-client relationship. 

Look for an insurance law attorney in the Super Lawyers directory for legal help.