They Don’t Say “Scam”

Bad faith claims against insurance companies

Scam is such a harsh word. The proper way to say it, in polite company, is “bad faith” or even “unfair trade practices”. What it amounts to is a situation where there has been a loss – and this part isn’t even contested, everyone agrees here – and the insurance company essentially says, “We aren’t going to pay, sue us.”

Shocking? Yes. This is exactly the sort of practice that commonly happens during a disaster; the kind of misbehavior that arose when New Orleans was hit by hurricane Katrina. Insurance carriers flatly denied claims and put the burden of proof on the homeowners – the very people who were in no position to pursue extended legal action against them.

Fast forward to now. Jump several thousand miles to Montana. No hurricane, no flooding, but guess what? The same technique turns out to work just as well -- outright denial of a valid claim just to pressure a financially strapped claimant.

But why do it if they know they will lose the case against them? Read on to find out the real trick here.

A hypothetical and two victims

Let’s take a simple case to see how it works. Suppose you slip and fall on someone’s property because they created a hazardous condition. Maybe it’s even on film. You’ve documented the injury and are see

king compensation for medical bills and loss of wages because you couldn’t work while your broken leg healed. There is also some nerve damage which adds to the cost.

Everything is cut and dried and you have a claim against the property owner’s insurance company. In fact, you are willing to settle for the limit of the property owner’s liability coverage, say $100,000. In a fair and just world, the negotiation would proceed without too much delay and the claim would be settled.

Now, consider the matter from the insurance company’s point of view. They could settle for the policy limit, but if they delay or deny the claim, the worst that can happen is that they will be sued. And if they lose the lawsuit, they won’t have to pay a penny more than the policy limit anyway.

They can pressure you to settle for less, knowing that a judgment for more than the policy maximum will have to be paid by the homeowner. That’s the second victim. An insurance company that refuses to act in good faith doesn’t have to pay more and by threatening to take it all the way to a trial, they might get you to settle for less than you deserve. Why? Because you know going to court will result in a higher judgment, but a judgment you might never collect if the homeowner doesn’t have serious cash available.

Fighting bad faith

Because the issue isn’t hypothetical, but actually happens, Montana law has addressed the circumstance.

Under the Montana Unfair Trade Practices Act, the second victim in the above scenario, the policy holder, can sue their own insurance company for bad faith actions. The third party claimant can also sue for damages above the policy limit as well. Some of the unfair trade practices covered under the act:

• Misrepresentation of facts or insurance coverage – saying something isn’t covered when it is.
• Failure to pay claims without conducting a reasonable investigation.
• Withholding or delaying a decision on whether or not something is covered after a proper submission of a claim.
• Refusing to negotiate or attempt to settle a claim when the facts are reasonably clear.

While the statute is an important tool to keep insurance companies from “playing the system” against their own clients and third party claimants, there are important deadlines to be aware of. Policy holders have two years to file after a violation has occurred. Third parties have only a year to file after a settlement or judgment has been entered.

If you think you have been a victim of bad faith: Make sure you bring the issue up with your attorney!

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