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What Is Insurance Bad Faith?

April 2, 2020

Woman with hands in hair looking downBuying insurance is not like buying most other products or services. You buy it, but you hope you need never need to use it. You may pay premiums for years before making a claim. When you do make a claim, you may be shocked at how your insurance company treats you.

If your claim has been unreasonably delayed or denied, you should consult an attorney who represents policyholders and handles insurance bad faith cases.

Insurance bad faith is a general term that refers to a variety of violations committed by insurance companies. As a policyholder, you have certain rights when it comes to first-party coverage. Many of these are contained in the New Mexico insurance code. Others come from case law or are promulgated by the New Mexico Superintendent of Insurance.

For example, the Trade Practices and Frauds Act, created in 1984, defines and prohibits certain unfair claims practices by insurance companies. For example, insurance companies are prohibited from misrepresenting pertinent facts and policy provisions. Insurance companies must acknowledge and act on communications from policyholders with reasonable promptness. They must work in good faith to reach prompt, fair, and equitable settlements when liability is clear. And they must explain the basis for any denial of coverage.

These rules are designed to protect policyholders and apply to various types of insurance, such as automobile insurance including uninsured and underinsured motorist coverage, life insurance, disability insurance, health insurance, and property insurance.

Abusive tactics by insurance companies may also violate laws that are not specific to the insurance industry, but cover all companies doing business in New Mexico. These laws include the Unfair Practices Act, which prohibits misleading and deceptive statements, and common law duties set out in case law, like a claim for breach of contract.

If you have been harmed by an insurance company's abusive tactics, you may have a case for insurance bad faith. If the insurance company acted maliciously or willfully, it may be required to pay punitive damages. Consult an insurance bad faith attorney as soon as possible, as there may be deadlines on taking action.