But there lies the problem. No matter what you see in TV commercials for Allstate and State Farm, etc., an insurance company’s top priority is its bottom line financially. Every action taken is calculated to maximize profit. It is impossible for an insurance company to place the insureds well being on equal footing with its own objectives.
Because of this incongruity insureds often find themselves slighted by their carrier in a time of need. In response, Pennsylvania enacted the insurance bad faith statute, 42 Pa.C.S. § 8371, which creates a cause of action against insurance companies.
An insurance company acts in bad faith if it: (1) does not have a reasonable basis for what it does, and (2) knows or recklessly disregards its lack of a reasonable basis.
Put another way, bad faith occurs if an insurer knowingly or recklessly acts without a reasonable basis in handling an insured’s claim. Keep in mind that “reasonable” means governed by or being in accordance with reason or sound thinking or rational.
In deciding whether or not an insurance company acted in bad faith toward its insured, a judge or jury will consider all of the company’s actions, including its responses to communications from its insured, its investigation of the claim, and its handling of settlement negotiations. When an insurance carrier is found to have acted unreasonably toward it’s insured they are responsible for the harm caused.
Specifically, in an action arising under an insurance policy, if the court finds that the insurer has acted in bad faith toward the insured, the court may take all of the following actions:
1. Award interest on the amount of the claim from the date the claim was made by the insured in an amount equal to the prime rate plus 3%.
2. Award punitive damages against the insurer.
3. Assess court costs and attorneys fees against the insurer. Share this post :