30 Jul 2014

“Bad Faith”: What Happens in Arkansas When Your Insurer Doesn’t Step Up to the Plate

In addition to the express terms contained in an agreement, every contract in Arkansas contains what is known as an “implied covenant of good faith and fair dealing.” This means that every party to a contract must conduct itself in its relationship with the other party to the agreement honestly and fairly.

Insurance policies are contracts between an insured and the company that promises to be there when tragedy or misfortune strikes. Given that the provision of benefits and support are the reasons why you pay hefty premiums to protect your home, car, boat, and other things of importance, you have every right to expect that your insurer will administer your policy and provide coverage in good faith, as is required by law. However, we all know that insurance companies are not charities and are not immune from making decisions and judgments that are based on their own financial interests rather than their obligations to their insureds. When insurance companies make such decisions dishonestly or engage in misleading or deceptive conduct, Arkansas law refers to this as “bad faith” and it can be the basis for the recovery of damages by the insured from their insurer.

In Arkansas, policyholders can sue their insurers if they act dishonestly in a number of respects when handling claims. These suits can be common law tort claims against insurers and, in the event an insurer fails to pay the loss within the time specified in the policy after demand is made, a policyholder can bring a claim pursuant to A.C.A. §23-79-208(a)(1), which provides that the insurer “shall be liable to pay the holder of the policy…, in addition to the amount of the loss, twelve percent (12 percent) damages upon the amount of the loss, together with all reasonable attorney’s fees for the prosecution and collection of the loss.” An insured can bring both a common law “bad faith” claim and the aforementioned statutory claim, and can recover compensatory and punitive damages as well as those set out in the statute.

Examples of Bad Faith

Examples of insurer conduct which can form the basis of a bad faith claim by an insured include:

  • Denying that a valid claim is covered
  • Only paying partial benefits
  • Failure to defend a third-party claim
  • Refusing to settle with a third party
  • Failing to properly investigate a claim
  • Undue delay in claims processing, even if benefits are eventually paid
  • Offering an unreasonably low settlement amount
  • Cancelling or rescinding a policy in order to avoid paying on a claim

Not All Denials or Bad Decisions Equal “Bad Faith”

It is important to note that not every denial of coverage or incorrect decision made by an insurer will support a bad faith claim. According to the Supreme Court of Arkansas:

[B]ad faith must include affirmative misconduct by the insurance company, without a good faith defense, and that the misconduct must be dishonest, malicious, or oppressive in an attempt to avoid its liability under an insurance policy. Such a claim cannot be based upon good faith denial, offers to compromise a claim or for other honest errors of judgment by the insurer. Neither can this type claim be based upon negligence or bad judgment so long as the insurer is acting in good faith…”

Aetna Cas. & Sur. Co. v. Broadway Arms Corp., 281 Ark. 128, 664 S.W. 463 (1984)

If you believe your insurance company has been acting unfairly or otherwise failing to live up to the promises it made to you, reach out to an experienced Arkansas insurance coverage lawyer who can evaluate your situation and advise you how to best proceed.

Kendall Law Firm: A Trusted Ally in Your Corner

When insurance companies deny coverage or underpay a claim, policy holders are left to pick up the pieces and the bill. The attorneys at Kendall Law Firm believe that our clients deserve respect and fair treatment. If you have been denied coverage, treated unreasonably, or paid less than you need, call us today at (479) 464-9828 to speak to an insurance litigation attorney ready to fight for you.

This website has been prepared by the Kendall Law Firm for informational purposes only and does not, and is not intended to, constitute legal advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.

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