When an insurance company fails to honor the obligations in your insurance contract, or fails to perform some other responsibility it has to you pursuant to the insurance you purchased, you may have a case against the insurance company for "bad faith." It is important to note that bad faith cases arise from disputes between you and your own insurance company — if another driver's insurance company is refusing to pay money to you, that is not bad faith since there is no insurance contract between you and another person's insurance company. In Wisconsin, and insurance company commits bad faith when it (1) intentionally (2) denies, fails to process, or fails to pay a claim (3) without a reasonable basis for such action, and the cause of action arises only when all three elements are present. Examples of bad faith can include all kinds of insurance, from health and dental to automobile and homeowners. Other examples may include failure to provide for a defense as required in the event you are sued, or failure to follow contractual procedures in the event of a dispute as to the amount of compensation to be provided to you under your own coverage after an accident.
Insurance companies have years of legal experience litigating the terms of their contracts — contracts written by skilled lawyers which have been carefully upgraded as new decisions are handed down by appellate court. Coverage attorneys incorporate new case law into policies and regularly re-write their contract. Terms that may appear to a consumer to be simple English may have their origin in a legal opinion and may have been given a special interpretation that consumers are not familiar with. Because companies make it their business to know how standard terms have been defined by judges, insurance carriers have the upper hand in drafting policies and selecting the language they find most advantageous for making a profit.
Insurance law routinely provides that should there be an ambiguity or uncertainty in a policy, an uncertainty in choice of wording or ambiguity in meaning would be resolved in favor of the policyholder and against the insurer. In the absence of a misrepresentation regarding coverage or exclusions, if the language of the policy is clear and explicit, the clear meaning will be enforced.
Insurance contracts are interpreted by judges and courts to effectuate only the objectively reasonable expectations of the insured. Any personal, or subjective, expectation of a policyholder which cannot be reasonably supported by the language of the contract is unenforceable. It matters not what the policyholder/customer truly and honestly believes in his or her own mind. That subjective opinion is never in issue in a court of law. The real contest is to decide what the words of the policy mean to an objective person or a disinterested, common reader. So, when reading an insurance policy, the words selected by the insurance company are to be interpreted by judges according to their plain meaning. A plain meaning is one which an ordinary person would attach to such words, not the meaning which might be utilized by an insurance company executive or an attorney.
Exclusions and limitations in a policy, because they often result in denying coverage when there is a loss, must be in clear and written in unmistakable language. It is for this reason that exclusions and limitations are always narrowly, or strictly, construed. If there is more than one meaning to be given to an exclusion or a limitation, the narrowest interpretation will be adopted by the court. Any exclusionary clause that is not clear and conspicuous will be interpreted in the interests of the insured.
Every insurance contract contains an unwritten, invisible, or implied term referred to as the covenant or promise of good faith and fair dealing. This is a promise imposed by law upon an insurance company to always act fairly towards its insureds in handling their claims. Whether or not such a clause is included in the policy, judges will read the policy as if it were there. Carriers must meet the reasonable expectations of the policyholder and an insurer must always give as much consideration to the financial interests of its insureds as it does to its own financial interests.
In bad faith cases a jury is always asked whether under the facts the carrier acted reasonably. Denying benefits, delaying payments and paying less than what is owed are examples of bad faith. An insurance company is obligated to thoroughly and promptly investigate all claims and must inquire into all the possible issues that might support an insured's claim. This obligation is not terminated simply because the insured files a lawsuit against the company. Where an insurer makes a belated offer of settlement, a cause of action for bad faith does not correct or set aside the previous wrongful conduct. Any payments to the insured only reduce the amount of the insurance company's final liability as it may determined by a jury.
In a bad faith action an insurance company's business practices or common course of conduct is routinely admissible to show motive, opportunity, intent, plan, knowledge or the absence of a mistake or an accident in the manner in which it dealt with its insured. It is not necessary to show that the insurer intended to cause harm in a breach of the covenant of good faith and fair dealing. The policyholder need only show that the insurer failed to honor the agreement and had no cause not to pay what was due under the contract. When a person buys an insurance policy, the very risks that are insured against make it clear that if a claim is not satisfied the policyholder will suffer financial pressure and emotional distress. Policyholders obviously will be vulnerable to oppressive tactics by a carrier and insurance companies are presumed to know that a denial of benefits will very well result in emotional distress to their insureds.
Where a policyholder successfully shows that an insurer breached the covenant of good faith and fair dealing, the insured can recover all damages caused by the breach. This includes all consequential losses, loss of use of the insurance proceeds, general damages, attorneys' fees and in cases of egregious and outrageous misconduct, punitive damages.