Victim of Insurance Procedural Bad Faith? Key Case Developments That Could Affect You

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(USA Herald) — Insurance policies are contracts we hope we never have to use. But when disaster strikes, we expect insurance companies to hold up their end of the bargain in good faith. The legal term for this is “procedural bad faith,” an evolving concept that has broad ramifications for policyholders. Recent trends show an unsettling frequency of bad faith conduct by insurance giants, putting the average consumer at risk.

Traditionally, bad-faith claims arise when insurers deny coverage without proper cause. This form of claim is called “substantive bad faith.” But not all bad faith is about denial; sometimes it’s about how you’re treated in the process—enter “procedural bad faith.”

The core idea here is that an insurer can still be held accountable for bad faith conduct, even if a claim is ultimately paid or rightly denied. This includes intimidating, delaying, or oppressive practices during the claim handling process.

Deese v. State Farm: A Landmark Case

The case of Deese v. State Farm Mutual Automobile Insurance Co. serves as a cornerstone. After an auto accident, Deese, the policyholder, was partially paid for chiropractic care but not fully reimbursed. The insurance company had outsourced the claim’s evaluation to an independent chiropractor. Deese sued for both breach of contract and procedural bad faith.

What’s astonishing is that the jury rejected the contract claim, acknowledging the insurer had paid all that was due. However, it sided with Deese on the bad-faith claim, awarding both compensatory and punitive damages.

How Does This Affect You?

This case sets a critical precedent. If you’ve had an insurance claim and felt mistreated during the process—by delays, lowball offers, or unnecessary complexity—even if your claim is eventually paid or properly denied, you might still have a case for procedural bad faith.

Another pivotal case is Coventry Associates v. American States Insurance Co., where the Washington Supreme Court allowed a procedural bad-faith claim even when the insurer rightfully denied the claim. This has significant implications, particularly when extended to third-party bad-faith claims. The message is clear: insurers’ responsibilities go beyond mere coverage; they are obligated to treat their policyholders fairly throughout the process.

While Washington and Arizona have progressive stances on procedural bad faith, other states are more conservative. California, for example, restricts bad-faith claims to post-claim conduct, complicating matters for policyholders.

Bad faith claims, especially those involving litigation or challenging settlements, are still a legal battleground. Insurers are becoming increasingly aware of their vulnerability to these claims, which may drive positive change in their conduct.

Procedural bad faith is a growing concern, given the often David vs. Goliath scenario faced by average policyholders against insurance giants. Cases like Deese and Coventry serve as crucial milestones in reshaping this area of law, with significant implications for you, the consumer. As policyholders become more informed, the frequency of successfully litigated procedural bad-faith claims is likely to rise.

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Further Reading:

  1. Insurance Giant State Farm Accused of Bad Faith Practices in Nebraska Property Damage Claims
  2. Exposing Insurer Bad Faith: Allianz’s $20M Flood Saga and the Fight for Policyholder Rights
  3. State Farm Insurance Accused of Billion-Dollar Minority Fraud Scheme

Reporting by Samuel Lopez | Legal & Insurance News Contributor for USA Herald