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When Insurance Companies Act in Bad Faith: How to Protect Your Business

4 Mins read

Businesses purchase commercial insurance to protect their respective business from unexpected events that could threaten their financial stability. Whether it’s property damage, liability claims, or other losses, businesses rely on their insurance policies to provide them with the protection they need, but what happens when these insurance companies fail to honor their obligations?

When commercial insurance companies act in bad faith, the consequences can be devastating for businesses. By understanding the risks and taking proactive steps to protect their interests when insurance companies act in bad faith, business owners can ensure that they have the coverage they need to survive and thrive, even in the face of unexpected challenges

Understanding Bad Faith Insurance Practices

Bad faith insurance practices refer to actions taken by an insurance company that violates their obligation to deal fairly and honestly with their policyholders. These practices can take many different forms, such as:

  • Delaying payments
  • Denying claims without giving a reason
  • Delaying investigation into the claim
  • Make false statements about the claim
  • Offering settlements that do not cover the full amount due
  • Using substandard materials to settle the claim
  • Turning the responsibility of payment to another company, such as the contractor completing the work
  • Estimating the cost to rebuild as too low

The commercial insurance attorneys, Dawson & Rosenthal P.C. note, any combination of the actions stated above can be a reason to file an insurance bad faith suit against the insurance company. It is crucial for businesses to understand what bad faith practices and common insurance schemes are and to take steps to protect themselves.

Without taking legal action, the consequences can be severe for policyholders. For businesses, these consequences can include:

  • Financial losses from uncovered claims or delayed payments
  • Damage to reputation due to publicized disputes with the insurance company
  • Interruption of business operations due to lack of coverage or delayed payments
  • Possible business closure

By understanding these risks, businesses can take the next steps to protect the future of the business.

Protecting Your Business from Bad Faith Insurance

To protect businesses from bad faith insurance policies, owners need to take proactive measures.

Understanding Your Policy

The first step in protecting your business from bad faith insurance is to fully understand your policy. Business owners should carefully review their policies to understand what is covered and what is not covered. This includes knowing the deductibles, limits, and exclusions in the policy.

Document Your Losses

Any time you suffer losses or damages as a result of bad faith insurance, you should keep detailed documentation of the incident. This includes taking pictures of the damage, gathering any receipts or invoices related to the incident, and keeping a record of any conversations with the insurance company.

File Claims Promptly

Business owners should file insurance claims promptly after a loss or damage. Insurance policies often have specific deadlines for filing a claim, so it’s important to act quickly to ensure that you meet them. Failing to file a claim on time can give the insurance company a reason to deny your claim and make your case more difficult to pursue without proper justification.

Communicate Effectively

Just like in your business, communication is key. Effective communication between you and the insurance company will help protect your business from bad-faith insurance practices. Make sure you are clear and concise in your communication and that you fully comprehend the information provided by the insurance company. Additionally, business owners should keep records of all communication with the insurance company, including emails, letters, and phone calls.

Taking these actions will give business owners an edge in their cases and will help protect their rights and interests.

What to Do If Your Business Has Been Affected by Bad Faith Insurance

Taking legal action against an insurance company for bad faith practices can be a complex and lengthy process. That’s why it’s important to have an experienced attorney on your side to help navigate the legal system and advocate for your rights.

How to Choose the Right Commercial Insurance Attorney

Choosing the right attorney is crucial when dealing with bad-faith insurance practices. You want someone who has experience in insurance law and who can advocate effectively for your rights. Here are some tips for choosing an attorney:

  • Look for experience: Look for an attorney who has experience handling cases involving bad-faith insurance practices. They should be familiar with the laws and regulations that apply to your situation and have a track record of success in similar cases.
  • Check their reputation: Look for an attorney with a good reputation in the legal community. You can check reviews and ratings on legal directories and review sites, and ask for referrals from friends or other professionals in your industry.
  • Consider their communication style: Communication is key when working with an attorney. You want someone who is responsive and keeps you informed throughout the process. Make sure you feel comfortable communicating with the attorney you choose.
  • Discuss fees: Make sure you understand how the attorney charges for their services and what the total cost may be. Some attorneys work on a contingency fee basis, which means they only get paid if you win your case. Others may charge a flat fee or hourly rate. Make sure you understand the fee structure before you hire an attorney.

In a lawsuit against the insurance company, you would need to prove that the insurance company acted in bad faith, which can be difficult. Your attorney will gather evidence and build a case to demonstrate that the insurance company acted unreasonably in handling your claim and that this caused you to suffer damages. If successful, you may be able to recover damages for the losses you suffered as a result of the insurance company’s bad faith practices.

Another option is to seek arbitration or mediation. These are alternative dispute resolution methods that allow you to resolve the issue outside of court. In arbitration, an independent third party will hear your case and make a binding decision. In mediation, a neutral mediator will help you and the insurance company negotiate a settlement. Both options can be less time-consuming and less expensive than a lawsuit, but they may not always result in a favorable outcome.

If you decide to take legal action, it’s important to do so in a timely manner. There are often time limits for filing a lawsuit or initiating arbitration or mediation, so it’s important to act quickly to protect your rights.

Trevor Laibl is a passionate writer and legal enthusiast who specializes in topics related to law, insurance, and safety. He is dedicated to providing valuable insights and expert advice to help readers navigate the complex world of insurance policies and claims.

Bad faith insurance stock image by SkazovD/Shutterstock

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