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The Collaborative Clearinghouse for Lawsuits and Other Claims Against ACE Group Insurance Companies

What is "Bad Faith"?

Generally speaking, bad faith is the unreasonable failure of an insurance company to honor the terms of an insurance policy it sells to a consumer. The New Jersey Supreme Court summed the idea up nicely in Bowler v. Fidelity & Casualty Co. of New York, 53 N.J. 313, 250 A.2d 580:

“Insurance policies are contracts of utmost good faith and must be administered and performed as such by the insurer. Good faith ‘demands that the insurer deal with laymen as laymen and not as experts in the subtleties of law and underwriting.’ [Citations omitted.] In all insurance contracts, particularly where the language expressing the extent of the coverage may be deceptive to the ordinary layman, there is an implied covenant of good faith and fair dealing that the insurer will not do anything to injure the right of its policyholder to receive the benefits of his contract.”

Some state laws allow plaintiffs to recover punitive damages and legal fees from insurance companies that act in bad faith.

The importance in having the threat of punitive damages in an amount sufficient to deter malicious, fraudulent or oppressive conduct is enormous. Otherwise insurance companies might succumb to the hefty financial incentive to institute in unfair claims practices. While many people would argue that the incrdibe difficulty in reaching a point where a jury can award punitive damages eliminates the deterrence function of such awards, they remain one of the only ways that consumers can keep insurance company greed in check.

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