Many states allow insureds to sue their insurance companies not just for breach of contract, but also for breach of the implied covenant of good faith and fair dealing, often called “bad faith.” These suits allow insureds to obtain not just contract damages, but also punitive damages to deter the insurance company from harming someone else the way they harmed you. Bad faith suits are common in California, Washington, Arizona and Nevada. Oregon does not currently award punitive damages in insurance litigation.
That depends on whether or not your insurance claim is subject to state, or federal, law. If you obtained your insurance as a benefit of your employment, it most likely is subject to federal law under ERISA.
Under ERISA, an insured can only obtain benefits owed, reinstatement of the insurance benefits so long as they are owed, and possibly attorney fees. If your employer is a church, is owned by a church (like some hospitals, for example), or is a state or local government entity, then your claim is likely governed by state law. This is also true for insurance that you obtain yourself as an individual, like a private life insurance policy, a business owner policy, or homeowners insurance.
A bad faith lawsuit will involve discovery, as both the insurance company and the insured try to gather information to support their positions. Both sides will take depositions, asking questions under oath. This process can be contentious and the insured may need to provide documents and information that they would prefer to remain private.
If an insured can demonstrate breach of contract, they may also be able to prove bad faith. Generally, the standard is whether or not the insurance company acted “unreasonably” or “with fraud, malice or oppression” in its handling and/or denying of the insurance claim. Whether or not the behavior or decision was “reasonable” depends in part on if the insurer can convince the court that a “genuine dispute” existed about the need to pay the claim. States also have insurance regulations related to fair claims handling. Violation of those regulations is also evidence of bad faith.
The specifics of bad faith litigation differ from state to state, but if you have a claim governed by state law, a bad faith lawsuit may be a possibility. Consult Monahan Tucker Law to learn more.
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