Acting in Bad Faith: Everything You Need to Know
Acting in bad faith is an act of intentional dishonesty that occurs from someone violating the basic principals of honesty in their dealings with others.3 min read
Acting in bad faith is an act of intentional dishonesty that occurs from someone not fulfilling their legal obligations, deliberately misleading someone, entering into an agreement with them with no intention of fulfilling the obligations, or violating the basic principals of honesty in your dealings with others.
States will recognize a breach of the implied covenant of good and fair dealing as acting in bad faith in regards to lawsuits for contract breach. An act of bad faith can be used as a defense for a breach of contract suit.
The idea of bad faith is also considered related to the term "double heartedness" which means that a person will act one way when their intentions are sinister and different than they appear on the surface. There are many types of bad faith acts and some that you may find include:
- A boss who makes a promise to an employee that they have no intention to fulfill
- A lawyer arguing a legal position that they are aware is false
- A realtor who misrepresented the quality or value of a property to gain the sale
- A bad faith act can be anything where someone has attempted to mislead or deceive another person to gain some benefit
Good Faith and Fair Dealings
When someone enters into a contract or agreement, there is what is termed an implied covenant of good faith and fair dealings which assumes that both parties have the goal of dealing fairly with the other. They are expected to honor their word and not attempt to shirk their obligations.
To be considered acting in good faith, it is assumed that neither party will attempt to destroy the others rights, nor interfere with the benefits that they are supposed to receive from entering into the contract. If either party strays from the path of good faith, then they run the risk of being sued for a breach of contract. This can include failing to perform any of the obligations that were set forth and understood in the regular agreement.
Insurance Bad Faith
A legal term also used when discussing acts of bad faith is insurance bad faith. The term is exclusively used in the United States and is a legal term that refers to the tort a policyholder can file against an insurance company if the latter party acts in bad faith. Insurance companies in the U.S. are required to act in good faith when dealing with their policyholders.
If an insurance company were to violate their duty to perform good faith they have committed bad faith insurance. In this instance, the policyholder would be able to sue the insurance company for breach of contract. In cases involving insurance bad faith, the plaintiffs can often recover significantly larger amounts than the actual face value of their policy. Instances of insurance bad faith can include such things as:
- Intentionally denying a policyholders claim
- Misleading the policyholder with false information
- Dishonestly adjusting a claim
- Not processing a claim in a timely fashion
- Misconduct during the claims process
- Refusing to respond to a claim
Bad Faith Insurance Claim
A bad faith insurance claim can occur for any number of reasons such as:
- An insurer failing to investigate a claim quickly or thoroughly
- An insurer unreasonably delaying a payout
- Denying benefits for those who deserve them
- Insurers translating the language of the insurance policy in a way that makes it unreasonable
- An insurer refusing to settle a case or reimburse the claimant for the entire amount owed
Bad faith insurance claims can result from bad actions of an insurance company or inactions which were not performed by the insurance company but should have been. Some situations in which an insurance company might be sued for an act of bad faith can include:
- Refusing to pay the claim without having performed a full investigation
- Refusing to settle a claim even when they know who is clearly the liable party
- Not responding to a demand within the agreed upon time limit
- Failure to timely pay or deny the claim
- Not conveying the necessary and pertinent information in a claim to the claimant
- Denying a person coverage without proper justification
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