The New York State Bar Association notes that state law requires insurance carriers to negotiate contracts in good faith. As described by Insurance Journal, acting in good faith also means that both parties provide truthful information.
Individuals or businesses applying for coverage must respond to a carrier’s questions accurately. Insurance companies may also seek verification. Although both parties may negotiate an application in good faith, an allegation that a carrier acted in bad faith could still occur.
Denied claims may lead to policyholders alleging bad faith
When policyholders submit claims, adjusters have an obligation to conduct thorough investigations and to avoid processing delays. Policyholders may also file appeals when denied. Insurance carriers could then request additional information to back up the insured party’s claims.
In some cases, policyholders may choose to take further action after a claim denial. Insurance Business America reported how a commercial policyholder in New York filed two separate suits against their carrier. One suit alleged a breach of the implied covenant of good faith and sought to recover consequential damages. The other alleged breach of contract.
Evidence could disprove allegations of bad faith
As noted by Insurance.com, carriers investigate every claim and may not have an obligation to pay for events not included in a policy or contract. Adjusters may, for example, use evidence such as police reports, structural examinations or medical records to verify information regarding the alleged damages.
As reported on the New York Senate website, enacting legislation proposed in 2022 could make it easier for insured parties to file bad faith lawsuits and seek punitive damages plus legal costs. Based on evidence that an insurance company could provide the court, however, plaintiffs may find it difficult to prove that a carrier acted in bad faith and deliberately circumvented a fair payout.