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insurance bad faith

Claim Denials and Insurance Bad Faith Laws

Insurance Bad Faith Laws in Louisiana

Insurance is about money. It costs money to have it. The consumer – insured or not – wants money from the insurance company. The insurance company wants to pay nothing, or at least as little as possible. If you have a claim against an insurer, it is often a battle.  Many times, the goal of the insurance company is to deny a claim for so long you either give up or take far less than full value. A question that often arises is when is an insurer acting in bad faith? Louisiana has specific insurance bad faith laws.

Louisiana has codified some specific duties insurance companies owe to their insured and claimants. However, just because the law says it, doesn’t mean that it is always followed. This is where the complaints arise.

There are two basic bad faith insurance laws in Louisiana: (1) Louisiana Revised Statute 22:1892 and (b) Louisiana Revised Statute 22:1973.

Another example is the Louisiana Unfair Trade Practices Act. This requires insurance companies to not engage in misrepresentations and false advertising of insurance policies. For example, an insurer cannot make misleading statements regarding policy benefits, advantages, conditions, and terms, as well as making statements to induce the lapse, forfeit or surrender of an insurance policy. But sometimes they do and this is where insurance bad faith laws also provide remedies, or penalties, against an insurer.

Duty of Insurance Company in Louisiana

In Louisiana, the law states that insurance companies are required to act and provide a duty of good faith and fair dealing. This duty requires insurers to adjust claims fairly and promptly and to make reasonable effort to settle claims with the insured and/or the claimant. However, as most people have experienced, this ‘duty’ is often an exercise in frustration.

One difference between the two Louisiana insurance bad faith statutes is the damages that you can recover.

Under 22:1892, assuming you can prove the elements of a claim, the insurer shall be subject to:

“[A] penalty, in addition to the amount of the loss, of fifty percent damages on the amount found to be due from the insurer to the insured, or one thousand dollars, whichever is greater, payable to the insured, or to any of said employees, or in the event a partial payment or tender has been made, fifty percent of the difference between the amount paid or tendered and the amount found to be due as well as reasonable attorney fees and costs.”

22:1973 provides for an even greater damage award:

“In addition to any general or special damages to which a claimant is entitled to breach of the imposed duty, the claimant may be awarded penalties assessed against the insurer in an amount not to exceed two times the damages sustained or five thousand dollars, whichever is greater.”

These penalty statutes provide strong incentives for insurers to treat people fairly. However, in many instances, that is not the case.

How Do You Make An Insurance Company Pay a Claim

Many people often accept less than full value for an insurance claim to avoid the hassles associated with fighting a big insurance company.  The best way to have an insurance company pay a legitimate claim is to:

  • have a legitimate claim;
  • document the whole claim;
  • have proof to support your claim;
  • save all letters to and from the insurance company;
  • write a complete demand letter;
  • settle a claim or file suit within the time allowed by law.

However, even then, as many have found, insurance companies are reluctant to pay what a claimant may perceive to be the full value of the claim. Some people are happy to accept less. Some law firms appear to be facilitating the practice of settling many claims quickly for less than full value.

Specific Examples of an Insurer’s Bad Faith

If you are someone who does not want to take less than full value for a claim, and you push an insurance company, there also may be a cause of action for the failure to abide by the duty of good faith and fair dealing. If the duty is breached, it forms the basis for a claim of insurance bad faith. Louisiana State law several identifies several actions which are considered a breach of this duty, such as:

  • misrepresenting pertinent facts or provisions of an insurance policy regarding coverage knowingly;
  • knowingly denying coverage or attempting to settle a claim based on an application the insurer altered without obtain the consent of the insured or providing notice;
  • knowingly failing to pay on a settlement within 30 days of reaching an agreement;
  • arbitrarily, capriciously, or without probable cause, knowingly failing to pay what is due by contract to the insured within sixty days of receiving satisfactory proof of loss.

Most insurance bad faith insurance claims often come up in automobile insurance or homeowner’s insurance policies, but they also arise in other areas as well.

Complexities Associated With Insurance Bad Faith

Often, it is difficult to get an insurance company to pay a legitimate claim. It is also almost impossible to get an insurance company to pay bad faith penalties without a lawsuit.  This is because insurance companies do not want to pay a claim, much less admit to bad faith nor pay money for that claim.

The complexities of this type of claim are illustrated in the case of Kelly v. State Farm, in which the Court examined the duties owed to a claimant and when Bad Faith was applicable to a claim. The text is long and boring to most law people, but very instructive to a lawyer who represents claimants.

“The plain language of La. R.S. 22:1973(A) is favorable to finding a cause of action for an insured. Most notably, after describing the duties owed by an insurer, La. R.S. 22:1973(A) concludes: “Any insurer who breaches these duties shall be liable for any damages sustained as a result of the breach.” It is a cardinal rule of statutory interpretation that “[t]he word ‘shall’ is mandatory and the word ‘may’ is permissive.” La. R.S. 1:3.

Conclusion

The bottom line is that the best way to receive damages under insurance bad faith laws is to hire a competent attorney who is versed in insurance bad faith laws and is willing to take the insurer to court. The more people who do it would tend to force insurance companies to treat people in a more fair fashion.

Patience and good lawyering is the best way to handle insurance bad faith claims.