What all policyholders should know about insurance bad faith in Arizona

Was your insurance claim delayed, denied or underpaid? The law may be on your side.

If you have insurance of any kind, you rightly assume you will get the coverage you need, when you need it. However, far too many policyholders are frustrated to find that is not always the case.

Insurance companies have a strong financial incentive to protect their bottom line. Recognizing that pressure, Arizona law imposes a duty on insurers to handle claims fairly and reasonably, giving equal weight to the interests of their policyholders as to their own interests. This duty - called the duty of good faith and fair dealing - is implicit in every insurance policy.

When an insurance company fails to live up to this standard, the policyholder suffers. The law gives policyholders the opportunity to hold insurers accountable through a bad faith insurance claim.

What the policyholder has to prove

To establish bad faith on the part of the insurer, the policyholder must show that:

  • The insurer intentionally denied, delayed, failed to pay or failed to process the claim
  • The insurer didn't have a reasonable basis for doing so
  • The insurer either knew there was no reasonable basis for its action or it failed to conduct an adequate neutral investigation
  • The insurer's action resulted in damages

Because bad faith claims are intentional torts, they require some degree of deliberate action on the part of the insurance company. An insurer will probably not be liable for delays that resulted from inadvertent oversights or good faith errors. Yet the question of intent can be complicated. When seeking punitive damages, for example, the policyholder must prove a more specific intent by clear and convincing evidence (a higher standard of proof).

Damages you may be entitled to recover

Bad faith claims can result in up to four types of monetary damages:

  • Amount of denied or unpaid benefits (plus interests)
  • Related financial losses and future predicted losses
  • Compensation for emotional distress, humiliation and inconvenience
  • Punitive damages (in certain circumstances)

The policyholder has the burden of proving the amount of damages involved.

Possible defenses

Insurance companies may challenge bad faith claims on any number of grounds. Common defenses include assertions that:

  • The claim was fairly debatable - that is, a reasonable decision-maker could have gone either way.
  • The denial or delay was due to inadvertence or negligence, and thus was not intentional.
  • There were reasonable grounds for the delay or denial based on the terms of the policy or the results of a thorough and neutral investigation.

If the insurer's defense rests upon an exclusionary provision in the policy, the insurer has the burden of proving that the provision applied. Notably, however, the insurance company can still be responsible for bad faith if it failed to conduct a reasonable investigation or unduly delayed or underpaid the claim - even if coverage was not actually available under the policy.

Do you have a claim?

If you feel that your insurance claim was wrongfully denied, delayed or underpaid, you may have a claim for bad faith. Arizona's statute of limitations imposes a strict deadline for filing these claims. Consider consulting with an insurance attorney about your rights.

Keywords: insurance, insurance law, bad faith insurance, insurance delay, insurance denial