Insurance policyholders in West Virginia enter into insurance contracts with their insurance companies with the expectation that the companies will pay for property damage and personal injuries under certain circumstances as long as the policyholders keep up with their premiums. Insurance companies have a duty to uphold their contractual obligations when their insureds fulfill their end of the bargain by making timely premium payments. Unfortunately, however, some insurance companies aggressively try to avoid paying claims by exercising bad faith to unfairly deny or delay valid claims. When this occurs, a policyholder has the right to pursue a bad faith insurance claim against the insurance company to recover damages.
What Is Insurance Bad Faith?
Insurance bad faith claims can be filed when an insurance company fails to meet its legal responsibilities owed to a policyholder. Insurance companies can exercise bad faith when dealing with their insureds or when dealing with third-party claims filed by others. An insurance company has a duty to act with good faith and to fairly deal with both its insureds and third parties when handling claims. This duty arises from both the common law and the West Virginia Unfair Trade Practices Act.
Common Law Insurance Bad Faith in West Virginia
Numerous cases have established the duty of insurance companies to exercise good faith and fair dealing. This duty is implied in the contracts the companies have with their insureds. When an insurance company breaches an insurance contract and fails to pay a property damage claim filed by its insured in bad faith, the policyholder has the right to file a legal action against the company. If a plaintiff prevails in a common-law insurance bad faith lawsuit, the insurance company can be ordered to pay the plaintiff damages for his or her economic losses, the inconvenience and aggravation he or she suffered, and his or her attorney’s reasonable fees under Hayseeds, Inc. v. State Farm Fire & Cas., 352 S.E.2d 73 (1986).
An insurance company can also engage in bad faith when dealing with third parties. This occurs when an insurance company fails to settle a valid third-party claim filed against its insured when the demand falls within the policyholder’s contractual policy limits and a jury finds against the insured for an amount that is more than the policy limits.
For example, if a policyholder is at fault in a motor vehicle accident and is sued by the injured party, the policyholder’s insurance company has a duty to settle the claim within the policy’s limits. If the injured plaintiff makes a demand for settlement within the policy limits of the insured’s policy that the company refuses, the company can be liable for insurance bad faith if a verdict is later returned for an amount that is higher than the policy limits.
In Shamblin v. Nationwide Mut. Ins. Co., 396 S.E.2d 766 (1990), the West Virginia Supreme Court held that insurance companies have the burden to prove that they engaged in good faith negotiations and had substantial, reasonable grounds for refusing to settle a claim in which a verdict for more than the policy limits was later returned by a jury. If the insurance company cannot meet its burden of proof by clear and convincing evidence, it will be liable for damages in an insurance bad faith claim.
Third-party claimants no longer have a private cause of action against insurance companies for engaging in bad faith settlement practices. However, they can file an administrative claim with the West Virginia Insurance Commissioner within one year.
Statutory Insurance Bad Faith
Statutory insurance bad faith claims in West Virginia fall under the Unfair Trade Practices Act at W.V. Code §33-11-4 et seq. This statute identifies several practices that are bad faith, including the following:
- Failing to reasonably investigate before denying a claim
- Failing to try to promptly settle claims in cases in which liability is clear
- Forcing insureds into litigation to recover damages by offering much less than the amounts they ultimately recover through verdicts
- Trying to settle claims by making unreasonably low offers than what might be reasonably expected in advertisements or written materials included with the application
- Telling insureds or third-party claimants that the company has a policy of appealing arbitration awards and verdicts to try to force them to accept offers much lower than the amount awarded in arbitration
- Unreasonably delaying claims when the liability is clear
- Failing to promptly give a reasonable explanation of the basis for denying a claim or an offer in compromise
To prevail in a statutory insurance bad faith claim, the party must present evidence showing that the insurance company regularly engaged in similar practices as a policy, custom, or habit.
Filing a Bad Faith Insurance Claim
Insureds can file insurance bad faith claims in court and do not have to file administrative complaints. However, the sole remedy for third-party claimants is to file administrative complaints with the West Virginia Department of Insurance. The deadline for filing an insurance bad faith claim in court or with the West Virginia Department of Insurance is one year, making it important for claimants to act quickly.
Insurance companies must engage in good faith and fair dealing when claims are filed by their insureds. When an insurance company breaches its contractual obligations, it can be liable to pay damages. To learn more about whether the insurance company involved in your case might have engaged in insurance bad faith, contact a West Virginia bad faith insurance lawyer at DiPiero Simmons McGinley & Bastress, PLLC for a consultation.