On January 16, 2023, Wheeler, DiUlio & Barnabei hosted the twelfth and final installment of their webinar series, The Perfect Claim. This series aims to discuss the entire claims process from start to finish so viewers can learn how to resolve claims more efficiently.

In Bad Faith Litigation: What To Do When You Run Out of Options, Partner Anthony DiUlio defines bad faith, discusses how to build your file for litigation, and explains the benefits and drawbacks of litigation.

What Is Bad Faith?

Bad faith is more than just being wrong, even if you are really wrong. True ‘bad faith’ is when the insurance company acts unreasonably and knows they are being unreasonable. The concept of bad faith is governed by state statutes and/or common law.

An example of bad faith is when a carrier has breached State Law by refusing to get a contractor estimate and instead compelled appraisal, only to get a contractor later who agreed with the homeowner.

A few examples of what may not constitute bad faith by themselves include (these are fact specific and could amount to bad faith in the right situation:

  • Delays
  • Not paying enough
  • Not changing their mind because you asked
  • Basing the decision on a recurring “expert”
  • Rudeness
  • Mistakes
  • Negligence

Proving & Limiting Bad Faith

Bad faith can be difficult to prove. In order to help prove bad faith, be sure to put everything in writing.

If the carrier refuses to put anything in writing, then you, as the insured or the public adjuster, need to put it in writing for them and end with language along the lines of, “If any of the above is incorrect, please let me know, in writing, within the next 5 business days. If I do not hear from you, I will accept that as your confirmation that the above is accurate.”

Carriers also generally have measures in place to limit bad faith exposures. These tactics include:

  • Getting experts
  • Making payments
  • Giving opportunities to respond and provide more evidence
  • Pointing out the insured’s errors, mistakes, or unprofessionalism

In order to best attempt to prove bad faith and overcome barriers, put all correspondences in writing, be a nice and reasonable person, document your file, give the carrier a chance to fix errors, or consult an attorney.

When Is Litigation the Right Choice?

Litigation is the process of having a third party determine your client’s fate through the presentation by an attorney with chances to settle during that time. Litigation is a good strategy for more involved or complex disputes as well as all coverage issues, whereas a typical appraisal is more appropriate for straightforward damage disputes.

Seeking litigation is the right course of action in the following scenarios:

  1. When the suit limit is approaching
  2. When the carrier will not budge on payment
  3. When the carrier will not budge on coverage
  4. When you have exhausted all other options such as connecting with the insurance department or management and using social media to your advantage.

On the other hand, it is not appropriate to litigate if the carrier is continuing to negotiate, the carrier has asked you for something (i.e. inspections, receipts, documents, etc.) and you have not provided it, or if you have not exhausted all other options.

The Litigation File

When discussing with an attorney for litigation and putting together a litigation file, remember these rules:

  • Rule 1: Send everything
  • Rule 2: Send a summary, position, and client contact information
  • Rule 3: Make sure the client knows an attorney is calling them
  • Rule 4: Organize the file as follows –
      • Letters/emails to the carrier
      • Letters/emails from the carrier
      • Letters/emails with the client
      • Photos
      • Estimates (both the carriers and yours)
      • Proofs
      • Administrative documents

What To Expect in Litigation

As mentioned, litigation can be the correct choice for bad faith claims. However, litigation is not a fast process, so patience is important.

In addition, 98% of litigation cases settle in the end, so it can be expected to settle before having to go court. Always expect risk when it comes to litigation.

Have questions about bad faith or the claims process? Contact Wheeler, DiUlio & Barnabei to learn more.