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When you choose an insurance company for homeowners insurance, a contract is entered under which you have several rights.  One of these rights is to have the insurance company act in good faith when you file a claim.  Unfortunately, some insurance companies may be guilty of what is known as insurance bad faith.  This is a term used to describe a situation in which an insurance company fails to act on its duties to you, the policy owner.  Here are the types of insurance that you may hold, some examples of insurance bad faith, the rights you have as the policyholder of an insurance policy, and what you should do if you believe that you are a victim of bad faith insurance.

 

Types of Homeowners Insurance

You must understand the type of homeowners insurance that you hold to know whether or not you are a victim of bad faith insurance.  The most common insurance policies include HO-1, HO-2, HO-3, Cash Value, and Replacement Value.  HO-1 is the minimum amount of coverage that you may hold, however, you may find that this type of insurance has been discontinued in some states.  It covers only hazard insurance for perils outlined in the policy and liability insurance.  HO-2 is an insurance type that generally covers your home, other buildings on your property (such as a garage or shed), personal property (usually up to 70% of the value), housing costs while repairs are being made, protection from the perils outlined in the policy, and liability insurance.  HO-3 is very similar to HO-2, however, it covers more perils.  Additionally, if personal property is damaged, it is only covered if the perils are the cause of the damage.  A cash value homeowners insurance policy will pay out the cash value of the damaged property, taking into account depreciation.  This only covers items mentioned in the insurance policy.  A replacement policy also covers only the items listed in the policy, however, it covers the entire cost for replacement or repair of the house or personal possessions.  Additionally, you are only covered up to the amount of your policy.  If you wish for additional coverage, you will need an extended or guaranteed replacement value property.

 

Bad Faith in a First-Party Claim

A first party claim is a term used to describe if you create a claim because of damages to your home or personal property in the event that the damage is covered.  In this instance, the insurance company is required to perform the duties of investigating the damages that have occurred, determining whether or not the damages are covered under the policy, and paying the appropriate amount for the damage.  An example of bad faith insurance in a first party claim is receiving an inaccurate estimate.  If hail damages the shingles of your home (provided you have coverage from hail storms) and the company makes an estimate that will not cover the cost of replacing these shingles, you may be the victim of insurance bad faith.  In this situation, it may be in your best interest to file a tort claim against the company.

 

Bad Faith in a Third-Party Claim

Third party claim is a term used to describe an insurance claim filed against the company by another person.  This is a common occurrence in liability insurance cases.  In this case, the insurance company must perform two duties in good faith.  First, they must defend the lawsuit or claim to the best of their ability.  Second, they are required to cover all of the costs associated with defending the claim.  An example of insurance bad faith in a third party claim is refusing to cover your defense costs.  Such as, if the rain makes your front porch steps wet and a visitor slips and falls, they may sue you.  If your insurance company will not cover the costs for a lawyer to defend the claim, then you may be the victim of bad faith insurance.

 

Conduct that Signals Bad Faith

There are several things that an insurance company may do that indicates they are acting in bad faith. These actions include:

• Using deception or misrepresentations to avoid paying your insurance claim
• Making unreasonable demands for proving your loss
• Taking an unreasonable amount of time to investigate or resolve the claim
• Misrepresenting information using complex policy language
• Using coercive or abusive tactics for settlement of your claim
• Failure to adequately or thoroughly investigate the claim
• Failure to disclose policy provisions or exclusions
• Failure to disclose the limits of your policy

 

Your Insurance Rights

The right to purchase homeowner’s insurance.  Some people have difficulty obtaining homeowners insurance.  This is usually caused by needing a type of coverage not covered by a policy from a private company or not being eligible for insurance through a private company.  In states such as Texas and California, you do have a right to purchase insurance.  You may have to prove that you have been denied by a select number of companies, but you will then qualify for insurance under a state policy.

The right to be notified of changes to your premium amount in a timely matter.  Sometimes, the company insuring your home may find an error in the calculations that were used to give you a premium amount.  In this case, you must be provided with written notice in 60 days of the error, as well as the new amount.  Then, you have the right to cancel the policy or accept the new rate.  However, they cannot legally change the rate unless you have been given written notice within 60 days of the day your insurance policy began.

The right to receive notice of cancellation or non-renewal.  Your insurance carrier must usually continue your policy unless you have not paid premiums, have been accused of fraud, or you are guilty of reckless activities that would increase your premium.  In either of these situations, you must receive a written notice that states your policy will not be renewed a minimum of 45 days before the end of the policy expiration date.  You must also receive written notice of cancellation and, this is only required to be delivered ten days before the termination date.  This written notice should always contain the reason that the company is discontinuing your insurance coverage.

You have the right to a fair refund if the policy is cancelled.  If you choose to cancel your homeowners insurance policy, then you may be entitled to a refund.  The specific terms for your refund should be outlined in the policy, however, it is usually determined using a short rate calculation method.  Some may also be retained for administrative costs.  If the insurance company cancels the policy, then your refund amount is usually calculated using a pro rata basis.

 

What to Do if You Think You are a Victim of Bad Faith Insurance

Be sure you performed your responsibilities.  Once an accident or damages have occurred for which your insurance company should be liable, you are required to provide written notice of the damage in a timely matter.  If you are requesting compensation for the damage, take photos or videos, and provide documentation, such as receipts, that prove the value of your items.  Often, this must be accomplished within 30 days for your claim to be valid.

Contact the company.  If you receive less than you believe you are entitled to, or if your insurance company denies your claim, you have a right to know why.  At this point, it is in your best interest to contact the company in writing.  You should also request that responses be sent in writing so that there is accurate documentation if you find that you are a victim of bad faith insurance.

Contact a lawyer knowledgeable in bad faith insurance and tort claims.  If you have performed your duties, and the company has failed to provide an adequate reason for denying your claim, then it is in your best interest to contact a professional.  A good lawyer will be able to advise you in whether or not you have been a victim in bad faith insurance.  They will also be able to guide you as you fill out the right paperwork and collect documentation.  A knowledgeable lawyer will also be able to defend you during the trial and ensure you get the settlement from your insurance company that you deserve.

File a tort claim and stand trial.  Once it has been determined that you are a victim of bad faith insurance, it is time to file a tort claim and go to trial with your insurance company.  In some cases, after filing the claim against your insurance company, you will be able to settle without going to trial.  The settlement amount should cover the amount you are entitled to under your homeowners insurance policy, as well as the costs of hiring a lawyer, going to trial, and not having the matter settled in a timely matter.