The Duty of Good Faith

Most people know that an insurance policy is a type of contract. However many people do not know that there are special rules that apply to insurance policies which do not apply to other contracts. An insurance company has a duty of good faith to its policy holders. This duty of good faith means that an insurance company has to deal with all claims fairly.  The duty to act fairly applies both to the manner in which the insurance company investigates and assesses the claim and to the decision whether or not to pay the claim.
An insurance company must evaluate the strengths and weaknesses of the claim in a balanced and reasonable manner.  It must not deny coverage or delay payment in order to take advantage of the policy holder’s financial situation or to gain bargaining power in negotiating a settlement.  A decision by an insurance company to refuse payment should be based on a reasonable interpretation of its obligations under the policy.  This duty of fairness, however, does not require that an insurance company be correct in making a decision to dispute its obligation to pay a claim.  A simple denial of a claim that ultimately succeeds is not necessarily an act of bad faith.
If you can prove that an insurance company acted in bad faith when adjusting a claim the courts will award additional damages. This area of the law is complex. If you have had a claim denied by your insurer and are concerned about issues of bad faith please contact an experienced insurance lawyer to preserve your rights.

_{Source: oatleyvigmond.com  Posted on November 8, 2013 by Ryan Murray}