When an individual becomes involved in an automobile accident, it is critical that he or she exchanges insurance information with the other drivers involved in the crash and follows up afterward to seek out the coverage to which he or she is entitled. Given the obvious importance of insurance as a financial resource, most people don’t need much encouragement on this point.

What folks may need more guidance and encouragement about is pursuing an insurance company which refuses to deal fairly with an insured, and which tries to cover up its failure to treat an insured or claimant fairly. This refusal is known as insurance bad faith, and it occurs when an insurance company breaches its duty of to deal fairly and in good faith with a claimant. There are a variety of ways an insurance company can breach this duty, and it is important for accident victims to be able to recognize the potential signs of bad faith so that they can seek help in dealing with it. 

Kentucky statute provides a lengthy list of acts and omissions which can serve as a basis for insurance bad faith claims. These include things like:

  • Misrepresenting pertinent facts or policy provisions related the coverage in question;
  • Unreasonably delaying or avoiding communications with the claimant;
  • Failing to establish and carry out reasonable standards for the prompt investigation of claims;
  • Attempting to settle a claim for less than the amount a reasonable person would believe he or she was entitle to under the policy;
  • Offering coverage which is substantially less than the amount ultimately recovered by insured parties in a court action;
  • Threatening an insured or claimant with a policy of appealing from arbitration awards favoring the insured or claimant in order to compel acceptance of settlements less than the amount awarded in arbitration;
  • Failing to promptly provide a reasonable explanation for denying a claim or for the offer of a compromise settlement.

Bad faith can occur either to first parties or to third parties, the difference being that first-parties are policyholders who file a claim, while third parties are those who file a claim under another motorists’ insurance policy. In either case, the signs of potential bad faith are essentially the same and Kentucky courts will use the same test to evaluate bad faith claims.  In our next post, we’ll take a further look at this topic.

Sources:

Kentucky Revised Statutes, Section 304.12-230

Wittmer v. Jones, 864 S.W.2d 885 (1993)

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