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

Use these links to jump to different sections:

• What Types of Damages Can I Get in a Bad Faith Insurance Claim?
• What Are the Steps to Getting Compensated in a Bad Faith Lawsuit?
• Find an Experienced Bad Faith Insurance Lawyer

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

• Auto insurance; 
• Homeowners’ insurance; and
• Health insurance. 

In each type, 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. Practically, this means that as a policyholder, you pay premiums on your insurance policy and expect the insurance company to reimburse you if there’s an incident. The specifics of your coverage are spelled out in the insurance contract. 

Though the process of filing an insurance claim is often relatively smooth, insurance adjusters sometimes deny claims. And some denials are legitimate. For example:

• Your claim is beyond the policy limits;
• You waited too long to file a claim; or
• You didn’t provide enough information to support your claim. 

But other denials may involve bad faith tactics on the part of your insurance company to avoid paying.

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.

What Types of Damages Can I Get in a Bad Faith Insurance Claim?

The type of insurance lawsuit you bring will determine the compensatory damages you’re entitled to. David B. Ezra, an insurance lawyer at Berger Kahn in Lake Forest, California, says that plaintiffs generally have one of the following claims against insurance companies: 

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

“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,” explains Ezra. “But, 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 (aka bad faith). In that case, your damages tend to increase.”  

So, what do damages typically cover? Ezra says they can include:

• The withheld insurance benefits;
• Recovery of attorney’s fees;
• Non-economic damages for emotional distress or pain and suffering; and
• “In some bad faith cases, punitive damages, which can be awarded when you prove malicious or fraudulent conduct, generally by clear and convincing evidence.”  

What Are the Steps to Getting Compensated in a Bad Faith Lawsuit?

After your initial consultation, an attorney will assess your case and let you know if they agree to represent you. If so, and you decide to hire them, Ezra says that a lawyer’s first step is usually to send 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 formal demand letter, which accomplishes several aims: 

• 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 to the demand letter as well as your state’s legal process for handling insurance cases. For example, you may be required to use arbitration or mediation with the insurance company. Or you may proceed to file a lawsuit without alternative dispute resolution (ADR) mechanisms. Regardless, says Ezra, most cases reach a reasonable settlement offer before heading to court. 

Find an Experienced Bad Faith Insurance Lawyer 

If you suspect you’re a victim of bad faith insurance practices or a wrongful denial, consider speaking with an attorney about your legal rights and options.

Many bad faith insurance attorneys give free consultations or count consultation fees towards future legal services. Initial consultations let an attorney assess if you have a valid claim and let you get legal advice about your potential insurance case. 

Visit the Super Lawyers directory to find an experienced insurance law attorney in your area. For more information about this area, see our overview of bad faith insurance law and related content.