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What does “good faith and fair dealing” mean?

On Behalf of | Jan 20, 2023 | Insurance Matters

Insurance companies operating in Louisiana typically have to comply both with federal law and with Louisiana state laws regulating their industry. The regulations that apply to the insurance industry largely govern how they handle their policies, especially when someone makes a claim.

After all, companies that provide insurance obviously make more money when they approve very few claims. This creates a financial incentive to engage in bad faith insurance practices that harm policyholders. Companies must uphold the policies they write, and they must comply with all applicable regulations when creating a policy or responding to a claim.

Insurance regulations in Louisiana specifically require that insurance providers engage in fair dealings and operate in good faith when handling a claim. What does that mean in practical terms?

Policyholders should be able to trust the insurance company

Operating in good faith means approaching all interactions with honesty and an expectation of the same. You should be able to trust that you will get the coverage your policy promises without worrying about the insurance professional handling your claim trying to lie to you or trick you.

Operating in good faith ostensibly means that the company will do its best to approach the situation honestly. Fair dealing has a similar meaning. The insurance company should not seek ways to unfairly treat the policyholder or claimant.

That means they should not deny a claim without a valid reason, nor should they seek to deprive someone of an appropriate amount of compensation given the circumstances. Insurance companies that deny and delay claims, as well as those that manipulate people in accepting low settlement offers, may have violated their obligations under the law.

You have rights if the insurance company acts inappropriately. If you can show that the way the insurance company handled your claim did not adhere to legal standards, then you may be able to pursue a bad faith insurance claim in civil court.

A successful bad faith insurance lawsuit will result in compensation based on the value of the claim. Sometimes, people can receive up to three times the value of the initial claim. Understanding the obligation the insurance company has to you will make it easier for you to identify bad faith insurance when it happens to you.