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Insurance carriers have a duty to act in good faith and fair dealing to their insured. 

 

Meaning, they have a duty to live up to their end of the bargain when it comes to insurance coverage.  They cannot put their interests above their insured's interests.

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1)  What is an insurance carrier’s duty to their insured?

 

The equal consideration rule states that an insurer must give equal consideration to its insured when making a decision to settle or provide insurance coverage, usually in the context of a time-limited demand letter.  

 

In short, it prohibits insurers from ignoring their insured’s interests by making unilateral decisions in the insurance carrier’s sole interest.

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2)  What is the “equal consideration rule?”

 

Georgia has specific statutes that dictate when and how different types of insurance carriers can be held accountable. 

 

For instance, first-party bad faith claims can be pursued against property damage and UM/UIM carriers when certain conditions are met.  Alternatively, third-party claims for bad faith can be pursued when the insurance carrier is guilty of negligence, fraud, or bad faith in failing to compromise a claim.  

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3)  When can an insurance carrier be held accountable?

 

Yes, an insurance carrier can be held accountable in a third-party claim for bad faith due to simple negligence. 

 

The standard for responding to a time demand is negligence, as well as bad faith.  So, an insurance carrier can be held accountable for negligently respond to a time-limited demand.

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4)  Can an insurer be held accountable for simple negligence?

 

Common situations evidencing insurance misconduct often include:

 

  • Failing to disclose all available insurance and their policy limits;

  • Pressuring an insured or giving the insured bad advice;

  • Delaying payment on a valid claim;

  • Failing to communicate essential information;

  • Failing to offer a fair and reasonable settlement;

  • Failing to conduct a prompt and thorough investigation;

  • Refusing to pay the claim without investigating;

  • Failing to provide and explanation for the denial of a claim;

  • Failing to respond to a time-sensitive demand;

  • Failing to settle when liability is clear;

  • Putting its interests above it’s insured;

  • Denying coverage for invalid reasons.

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5)  What are some common grounds for bad faith?

 

Bad faith laws exist to keep insurers accountable for their obligation to their insured. 

 

They are meant to force insurance companies to live up to their end of the bargain and properly provide insurance coverage for valid claims.

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6)  What is the purpose of bad faith laws?

 

The damages available depend on the specific claim for bad faith.  

 

But, the damages usually include amounts above and beyond the original policy limits on the insurance policy and are punitive in nature.  

 

Damages can include statutory penalties, interest, liability judgments, attorney fees and expenses, and punitive damages.  Damages may also include consequential damages, such as:

 

  • Damage to credit;

  • Ability to seek employment; and

  • Mental and emotional suffering.

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7)  What types of damages are available when an insurance carrier acts in bad faith?

 

First party bad faith occurs when your own insurance carrier fails to provide full coverage to you, the insured.  

 

This most often occurs after a motor vehicle collision, involving property damage claims or uninsured/underinsured motorist claims.

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8)  What is first party bad faith?

 

Third party bad faith occurs when an injured party that is not the insured, sends a demand for payment to an insurance carrier due to the misconduct or negligence of their insured. 

 

Failure to pay on these valid claims could result in a third-party claim for bad faith.

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9)  What is third party bad faith?

 

Yes, Georgia has specific statutes to penalize insurance carriers who fail to provide proper compensation on a valid property damage claim. 

 

This is a type of first-party bad faith claim.

 

Specifically, a property damage insurance carrier can be responsible for paying any attorney's fees, plus a penalty of 50% of the amount that should have been paid for the property damage claim.

However, Georgia's statute sets some pretty specific criteria before these penalties can be pursued.  First, a demand must be sent to the insurance carrier and the demand must comply with the conditions set in the statute.  Next, you are required to obtain a verdict (usually in small claims court) that affirms your valuation of the property damage.  Finally, the insurance carrier has an opportunity to demonstrate that is actions were not done in bad faith - i.e. they had bonafide reasons to refuse your earlier demand.

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10)  Can my auto insurer be penalized for not paying my property damage claim fully?

 

Yes, Georgia statute, O.C.G.A. 33-7-11, allows your Uninsured/Underinsured auto insurance carrier to be penalized for not compensating you fully under the policy. 

 

This is a type of first-party bad faith claim.

Unfortunately, this statute does not provide for heavy penalties, so it's not commonly pursued. 

 

The statute provides that a UM/UIM auto insurance carrier can be penalized for 25% of the amount that should have been paid.  And, that penalty can only be pursued after (1) a time-limited demand in compliance with the statute has been served and rejected; and (2) you obtain a verdict or judgment on the amount that should have been paid.

Finally, pursuing this penalty also requires a separate lawsuit, once your underlying bodily injuries claim has reached a verdict or judgment.  So, they can prohibitive in time and expense.

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11)  Can my auto insurer be penalized for not paying my UM/UIM claim fully?

 

Yes, any insurance carrier can be held accountable for first-party claims of bad faith any time they fail to live up to their duty of good faith and fair dealing. 

 

This includes homeowner's insurance, health insurance, and others.  However, the type of penalties that may be pursued can be different.

These same insurance carriers can be held accountable for third-party claims for bad faith any time the insurance carrier is guilty of negligence, fraud, or bad faith in failing to compromise the claim.  This is usually done in the context of demand letters.

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12)  Can a homeowner’s insurance carrier be held accountable for bad faith?

 

Demand letters are important for proving bad faith because they memorialize the position of the claimant (or person seeking insurance coverage) and provide an opportunity for the insurance carrier to recognize valid claims.

Georgia courts and statutes have specifically recognized that demand letters that comply with proper legal standards are the appropriate vehicle for resolving disputed claims.  Failing to send a compliant demand letter likely absolves the insurance carrier of any future penalties for bad faith.

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13)  Why is a Demand Letter important for proving bad faith?

 

Yes, the at-fault party's insurance carrier can be penalized for not paying on valid claims made by a proper demand letter. 

 

This is a form of third-party bad faith claim.

Typically, this occurs when an insurance carrier rejects a valid claim pursuant to a demand letter.  If the demand letter is sent pre-suit and involves a motor vehicle collision, it must comply with the terms of Georgia statute O.C.G.A. 9-11-67.1.

Either way, a bad faith claim arises only when you obtain a verdict or judgment that exceeds the at-fault party's insurance coverage limits.  

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14)  Can the at-fault party's insurance carrier be penalized for not paying my claim?

 

If a jury verdict exceeds the at-fault party's insurance coverage, the insurance carrier may be responsible for a third-party bad faith claim.

Technically, the at-fault party is responsible to pay for any amounts above and beyond the insurance coverage.  So, if the at-fault party's insurance only provides $25,000 in coverage, but you get a $75,000 verdict, the at-fault party is personally on the hook to pay the difference - or $50,000.

For all practical purposes, it's very difficult to go after an at-fault party's personal assets, and their personal assets may not be sufficient to cover the verdict.  It's easier to pursue a third-party bad faith claim, assuming that a proper demand letter was sent and rejected before the verdict.

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15)  What happens if the jury verdict exceeds the at-fault’s insurance coverage?

 

Once a plaintiff has an excess verdict against the defendant-insured, the plaintiff technically can garnish the defendant’s assets to satisfy the verdict.  

 

As a practical reality, this is very tough to do and the defendant’s assets are usually insufficient to cover the verdict. 

Instead, the defendant-insured gives his bad faith claim to the plaintiff, in exchange for a release from personal liability.  The plaintiff and his attorney file a separate lawsuit against the defendant’s insurance carrier directly, pursuing claims of bad faith.  In that regard, the plaintiff “stands in the shoes” of the defendant.

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16)  How do third-party bad faith claims work?

 

An insurance affidavit is an affidavit, completed by an at-fault party, affirming that he has no other insurance that may be available to cover your claim.  

 

An insurance affidavit is often required when your damages, or injuries, exceed the insurance coverage available.

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17)  What is an insurance affidavit?

 

A financial affidavit is an affidavit, completed by an at-fault party, identifying their income, expenses, debts and assets.  

 

It is usually requested when the injured party’s injuries and expenses exceed the insurance coverage available.

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18)  What is a financial affidavit?

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