US tort system: insurance bad faith and extra-contractual damages can level the playing field with your insurance company

The International Bar Association

PUBLISHED ON: July 27, 2022

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Non-United States corporations with operations in the US face an unpredictable tort liability system. Moreover, the liability insurance system does not always immediately protect a company as expected, which leads to uncertainty in company finances. Non-US policyholders face the reality of difficult insurance company claims practices and should be prepared to respond, when necessary, by using extra-contractual liability and insurance bad faith concepts.

The insurance industry functions analogously the world over. In the US, however, uncertainties and unfamiliarity with the tort liability system accentuate problems in proper loss transfer to insurance companies. To obtain value for insurance premiums, non-US policyholders should understand insurance bad faith liability rules. Policyholders can protect their rights to the insurance they paid for and protect their US business operations.

Your insurance company may wrongfully deny a claim by: suggesting that coverage is not triggered; misrepresenting the scope of policy exclusions; or failing to affirm or deny coverage within a reasonable time (as mandated by some state laws). Therefore, insurance companies often act on the undeniable truth that it may be profitable for them to breach their duties under the insurance policy. Nevertheless, policyholders can uncover another truth by activating the potential consequences of unfair claims handling practices. Bad faith liability and extra-contractual liability change the calculus and opportunistic breach may no longer appear profitable.

Insurance company liability for bad faith and related above-policy limits liabilities provides crucial remedies for policyholders seeking to receive the benefit of the insurance policy that their insurance company sold. US law tells policyholders that every insurance policy contains a duty of good faith and fair dealing. Enforcing that duty of good faith makes the insurance transaction fairer to policyholders and can potentially save a company’s US business operations from suffering a substantial loss due to a wrongful denial of insurance coverage.

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