“An insurance company must give as much consideration to its insured’s interests as it does to its own.”

Most adults have multiple insurance policies. It is not unusual for a person to simultaneously have car insurance, home­owner’s insurance, health insurance, life insurance, and title insurance. When an insurance company fails to act in good faith and deal fairly with its customers, it is guilty of bad faith. The insurance customer, or insured, may in those cases bring suit against the insurance company for bad faith.

There is an implied duty of good faith and fair dealing in every insurance policy. This legal duty is not written in the insurance policy, but exists by law. To prove that an insurance company breached the duty of good faith and fair dealing, the insured must prove:

  1. that the company intentionally denied the claim, failed to pay the claim, or delayed payment of the claim without a reasonable basis
  2. the company knew that it acted without a reasonable basis, or failed to perform an investigation to determine whether its action was supported by a reasonable basis.

An insurance company’s conduct is not intentional if it is inadvertent or due to a good faith mistake. In all aspects of investigating or evaluating a claim, an insurance company is required to give as much consideration to its insured’s interests as it does to its own interests.

If an insurance company acts in bad faith, the insured may be entitled to recover the following damages:

The unpaid benefits of the policy.

Monetary loss or damage to the insured’s credit reputation.

Emotional distress, humiliation, inconvenience, and anxiety experienced by the insured.

Physical injury suffered by the insured.

To recover these damages, the insured must show that they resulted from the insurance company’s bad faith. The jury or the court will decide the amount of money that will reason­ably and fairly compensate the insured for his damages.

The above article is an excerpt from Arizona Laws 101: A Handbook for Non-Lawyers, 2nd Edition (Fenestra Books, 2012), by Donald A. Loose, republished with the author’s permission. 

Disclaimer: Laws change constantly. Specific legal advice should be obtained regarding any legal matter. The information contained on this website does not constitute legal advice and no attorney-client relationship is created. 

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Donald A. Loose is an Arizona attorney, and the author of Arizona Laws 101: A Handbook for Non-Lawyers, and Estate Planning in Arizona: What You Need to Know.  Mr. Loose is a regular guest on radio shows featuring local newsmaker interviews. He may be contacted at don@looselawgroup.com.