You buy insurance for one reason – protection.  You pay premiums in exchange for the promise that your insurance company will protect you.  Insurance companies have built marketing campaigns around one goal – getting customers to trust them to fulfill this promise.  Companies promise things like: You’re in Good Hands with Allstate; Like a Good Neighbor, State Farm is There; Nationwide is On Your Side.  These marketing campaigns work, and we trust our insurance companies.  But, with great trust comes great responsibility.

What do you do when your insurance company fails to fulfill its promise?  The attorneys of DeCamillis & Mattingly, PLLC know exactly what to do.  Our practice was built upon understanding insurance companies and protecting people that the insurance industry fails to protect.

When an insurance company fails to fulfill its promise, it is said the insurance company acted in “bad faith.”  Bad faith litigation involves many types of unfair insurance practices.  There is common law bad faith, statutory bad faith, first-party bad faith, and third-party bad faith.

When an insurance carrier fails to meet its obligations to its own insured, it is first-party bad faith.  It is first-party bad faith because the insured is a party to the insurance contact.  When an insurance carrier fails to meet its obligations to another person – an injured third party – it is third-party bad faith.  For example, if you are injured in an automobile collision and the at-fault driver’s insurance company refuses to pay your claim – even though liability is reasonably clear – the insurance carrier is guilty of third-party bad faith.  Kentucky residents are very fortunate because Kentucky is one of just a few states that allows third-party bad faith claims.

First-party, common law bad faith occurs when 1) an insurance company is obligated to pay a claim under the terms of a policy; 2) the insurer lacks a reasonable basis for denying the claim, and 3) the insurer knew there was no reasonable basis for denying the claim or acted with reckless disregard for whether such a basis existed.  Third-party bad faith can also give rise to a common-law, first-party bad faith claim.  If an insurance carrier fails to settle a claim against its insured within the insured’s policy limits and the injured person obtains a judgment against the insured in excess of the policy limits, the insurance carrier is guilty of first-party, common law bad faith.  In other words, the insurance carrier failed to protect its insured.

Kentucky also allows first-party and third-party statutory bad faith claims.  The Kentucky Unfair Claims Settlement Practices Act (KUCSPA) is found in KRS §304.12-230.  Among the prohibited “unfair practices”, the statute provides, “it is an unfair claims settlement practice” to:

  1. Misrepresent pertinent facts or insurance policy provisions;
  2. Fail to acknowledge and act reasonably promptly upon communications with respect to claims;
  3. Fail to adopt and implement reasonable standards for the prompt investigation of claims;
  4. Refuse to pay claims without conducting a reasonable investigation;
  5. Fail to affirm or deny coverage within a reasonable time;
  6. Not attempt in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear;
  7. Compel insureds to institute litigation to recover amounts due under an insurance policy by offering substantially less than the claim is ultimately worth;
  8. Attempt to settle a claim for less than the amount to which a reasonable person would believe he was entitled;
  9. Fail to promptly settle claims under one portion of an insurance policy (like property damage) in order to influence settlements under other portions of the insurance policy (like bodily injury), and
  10. Fail to promptly provide a reasonable explanation for the denial of a claim or settlement demand.

In addition to the above, bad faith claims are often accompanied by claims for breach of contract, fraud, and violations of the Kentucky Consumer Protection Act.  Sometimes, cases involve multiple insurance carriers and/or companies working on behalf of insurance carriers (such as excess insurance providers or third party administrators).

Though insurance agents are not traditional parties to “bad faith” cases based upon the handling of a claim, insurance agents and/or brokers are responsible for complying with legal and contractual duties.  Insurance agents are liable for errors and omissions and for any breaches of “fiduciary duties”.  Insurance agents owe “fiduciary duties” of integrity, honesty, full disclosure, loyalty, and good faith.  Agents must take time to understand your financial needs and the products they sell.  Insurance agents have an interest in the success of the insurance company they represent.  But, insurance agents are also obligated to protect your interests.  If your insurance agent puts the interests of the insurance company above your interests, your insurance agent can be liable for breaching their promise to protect you.

Long and short, insurance companies make money by holding onto their money.  Without “bad faith” law and other law regulating unfair insurance practices, there would be no way to enforce the promises insurance companies make in exchange for your money.  You pay for a service, and you deserve to get what you pay for.

If an insurance company failed to fulfill its promise in handling your claim, contact the law office of DeCamillis & Mattingly, PLLC at (502) 589-2822.  Help us make sure insurance companies keep their promises.