How much do you know about insurance bad faith?

A term that is used quite a bit in the context of insurance is “bad faith.” While most people correctly deduce that this term has something to do with an insurance company failing to live up to the terms of a policy it issued, this is perhaps only scratching the surface.

In recognition of this reality, today’s post, the first in a series, will start providing some essential background information on some of the duties owed by insurance companies to their customers.

What is an insurance policy?

At its core, an insurance policy is a contract executed between the insurer (the insurance company) and the insured (the customer) promising to compensate them for certain losses caused by certain perils in a certain area in exchange for consideration in the form of premiums.

For example, consider homeowner’s insurance, a line of property insurance that is essentially designed to protect an insured from any loss or damages to their domicile.

Why does this matter?

The fact that a policy is a contract is significant because it establishes that the insurance company owes their customers certain contractual duties. For example, in the eyes of the law, insurance companies owe a common law duty to defend and duty to indemnify.

What is the duty to defend?

The duty to defend means that the insurance company has an obligation to provide a legal defense to customers facing lawsuits filed by third parties that fall within the scope of the insurance contract.

What is the duty to indemnify?

The duty to indemnify means that the insurance company has an obligation to make payments to their customers for valid claims.

We will continue to examine this topic in future posts. In the meantime, if you have questions or concerns relating to insurance bad faith, please consider speaking with an experienced legal professional as soon as possible.