The basic concept behind insurance is simple. You pay your premiums, the insurance company pools that money with other people’s premiums, and if you suffer a covered loss you’re reimbursed from that pool. The insurance company’s profit is the amount left in the pool after paying valid claims. While this is vastly oversimplified, it is a helpful framework for understanding the powerful incentives insurers have to pay out as little as possible on valid claims.

Like any business, insurers want to maximize their profits. One way they do this is by taking in as many premiums as possible while paying out as little as they can to the people who pay those premiums—their “insureds.” The problem is that the insurer is also the initial decisionmaker on how much (if anything) they will pay on a claim. The less they pay, the more they make—the fox watching the henhouse if ever there was one.   

Insurers may employ numerous devices to minimize the claims they pay and maximize their profits. Some have experienced the “Deny. Delay. Defend” playbook. Just denying the insured’s claim, or a portion of it, may cause them to go away. After all, a typical homeowner’s policy—with all its declarations, endorsements, and modifications—may be hundreds of pages log and indecipherable to most. If a claim does move forward, continued denials coupled with bureaucratic foot dragging serve to wear the insured down; they may accept less just to be done. Those who insist on receiving the full benefits of the insurance for which they paid may be left with no other option but a lawsuit, where they’ll be met by the insurer’s on-call attorneys. In this light, it is understandable why insurance companies spend millions of marketing dollars to convince consumers that they’re in the good hands of a good neighbor who will protect against mayhem.  

Despite many the many challenges, insurers are far from powerless when an insurer treats them unreasonably. The law has developed powerful counterweights to coerce insurers to hold up their end of the bargain. Courts have recognized that the special relationship between insurer and insured imposes “a broad obligation of fair dealing and a responsibility to give equal consideration to the insured’s interests.” “Insurance bad faith” broadly refers to instances where an insurer places its own interests ahead of its insured.

Some states have enacted detailed legislation and rules governing how insurers must handle claims. Washington’s Insurance Fair Conduct Act (“IFCA”) is a potent example. IFCA and its accompanying regulations identify numerous unfair claims settlement practices, including requirements that insurers conduct prompt and reasonable investigations of claims, prohibitions against arbitrary or lowball offers to resolve claims, and other provisions consistent with good faith. One who prevails in showing that an insurer acted in bad faith in violation of IFCA may recover their actual damages sustained, together with the costs of the action, including reasonable attorneys’ fees and litigation costs. The court may also award up to three times those actual damages.

While the concept of insurance may be simple on its face, coverage disputes can be exceedingly complex. From first-party claims, to third-party claims, PIP, UIM, indemnification, subrogation, and so on, insurance can feel like a foreign language. Insurance may touch upon your case in ways you’re not even aware. BCG understands your rights and the insurer’s obligations and uses that knowledge to maximize recoveries for our clients.