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A Video About the Effect of the Tort of Bad Faith   

https://zalma.com/blog

It is indisputable that in the 1950\\u2019s, 1960\'s and 1970\\u2019s the insurance  industry abused some insureds to avoid paying legitimate claims. Without  a factual basis, insureds were accused of arson or other variations on  insurance fraud. Indemnity payments were refused on the flimsiest of  excuses. People were found to have diseases that only horses could  catch. Disability payments were refused because an insured was wheeled  in her wheelchair to church one day and, therefore, was not totally  house-confined. Insureds were driven into bankruptcy when reasonable  demands within policy limits were refused.  To stop this abuse, the courts of the state of California invented the  tort of bad faith. It took a universal contract remedy and decided that  the breach of an insurance contract without, what the court decided was  proper, genuine or even fairly debatable reasons, was transferred from a  contract breach into a new tort. Many other states have followed the  lead.  Until the invention of the tort of bad faith all that an insured could  collect from an insurer that wrongfully denied a claim were the benefits  due under the policy. After the creation of the tort of bad faith, the  courts allowed the insureds to collect, in addition, the entire panoply  of tort damages, including punitive damages.  The tort of bad faith, and the punitive damages that seem to go with it,  have, in my opinion, served their purpose. Insurers now have  professional claims departments. Insureds are almost universally treated  with courtesy and respect. More than 90% of all claims are resolved  without litigation or argument. Legitimate claims are paid with  alacrity.  Insurance fraud continues to grow. The amount of money taken from  insurers every year are in the tens or hundreds of billions of dollars.  The fear of punitive damages has made the fight against fraud difficult  and almost impossible. Even when an insured is arrested, tried and  convicted of the crime of insurance fraud, or attempted insurance fraud.  Attempts will still be made to sue the insurer for the tort of bad  faith.  Before I retired from the practice of law, I contended daily with  insurers who wanted to fight fraud but who found they must decide to pay  a claim rather than face the exposure of a punitive damage judgment.  Sometimes, the settlement of bad faith lawsuits, where there has been no  bad faith and an appropriate denial of a claim or refusal to pay a  policy limits demand, the insurer concludes it must pay more to avoid a  potential run-away jury.  I can, as my mentors taught me 53 years ago, state with confidence the  opinion that an insurer should spend millions of dollars for the defense  of a non-covered or fraudulent claim and not a dime for tribute to an  insured who brings a spurious bad faith law suit.  However, practical insurance professionals have a need to resolve  litigation as inexpensively as possible to protect the shareholders who  want the insurer to make a profit. As a result, the insurer will disobey  the millions for defense covenant and will make a business decision to  pay the non-covered loss or the fraud, rather than take a chance on an  adverse verdict.