Insurance Bad Faith and Bankruptcy
According to the Williams Kherkher law firm, when a catastrophic storm strikes, insurance companies will have thousands to tens of thousands of claims to process, often within a few days following the storm. Typically, insurance companies will hire independent adjusting companies to inspect damaged property and prepare an estimate for repairs for each claim. It sounds simple enough. However, multiple adjusters, delays in processing and payment, unfair denials, misrepresentations, and offers to settle claims for far below the actual cost of repairing the damage are all strategies that insurance companies typically employ to avoid paying fair value, as insurance companies can, and do, save millions of dollars by settling claims at less than their fair value.
Filing a benefits claim with their insurance provider is most natural for families and individuals to enable them to meet the resulting expenses, such as medical treatment after an accident, or repair/replacement of damaged property after a natural disaster, as well as to keep their heads above water. Such are some of the reasons why insurance policies are purchased in the first place – to serve as a financial buffer during times of real need.
Insurance providers owe policy holders genuine commitment or the duty of good faith and fair dealing, especially in paying claims. Under the common law this duty is spoken of as the “implied covenant of good faith and fair dealing,” which ought to be contained in every insurance contract. However, many of these providers transact business with dishonesty or fraud at the back of their minds. They enter into an agreement with policy holders with no real intent of living up to the terms of the policy they sell or they intentionally twist the meaning of something contained in the policy sold. This fraudulent act is what legal experts call “bad faith,” and there are different ways through which this can be committed, like: failure to investigate a claim promptly and thoroughly, unreasonable denial of claim benefits or delay in the payment of claims, and so forth.
The unfair dealing of many insurance providers can result not only to substantial losses of policy holders, but to the collapse of a policy holder’s financial stability, especially after a disaster. Unable to make the amount of claim necessary to keep him or her above water, a policy holder can end up not only incapable of making the necessary repairs to his or her damaged home, but also in settling financial obligations, such as home mortgage, car loan, credit card bills – to which his or her insurance claim would have been the solution. Like an added insult to his or her already injured state, he or she may come to a point where he or she will have to file bankruptcy.
Debt problems can affect anyone. Hardworking people who have encountered medical issues, unexpected job losses, divorce or losses after a natural disaster, may suddenly find themselves facing large amounts of debt. But, although there are thousands of people who file for bankruptcy protection every year, each person has a unique situation and needs a unique solution.
Bankruptcy is the legal declaration of the incapability to pay debts, personal or business loans. Filing for bankruptcy will stop creditors from attempting payment collections or filing lawsuits to have control over your properties, have your salary garnished or levy your bank account. This also means end of calls and notices from law firms, which are intended to harass you until you decide to pay.
There are different chapters of the bankruptcy law, each designed according to a debtor’s financial situation. These include:
- Chapter 7 – this law involves asset liquidation to enable payment of debts;
- Chapter 11 – also known as business reorganization;
- Chapter 13 – involves debt repayment based on a three-year or five-year repayment proposal; and,
- Chapter 12 – which is specifically designed for families of farmers and fisherman (who own the whole or more than 50% of the farming/ fishing business) with a regular annual income