Insurance Bad Faith

Understanding Insurance Bad Faith

The laws in Colorado make clear that an implied covenant of good faith and fair dealing exists in every contract of insurance. Therefore, when you purchase insurance, the insurance contract requires that all parties, including the insurance company, act in good faith and work to fulfill the purpose of the contract.

When you make an insurance claim and your insurer does not treat the claim fairly, the insurer is not acting in good faith. For example, if an insurance company denies a claim when it is clear that it should be covered or if the company is unreasonable in its valuation of an insurance claim, the company may be found to be acting in bad faith.

When an insurance company acts in bad faith, the insured can obtain compensation. In fact, to encourage insurance companies to treat their insured clients fairly, Colorado law allows a person who is injured by insurance bad faith to recover damages in excess of the policy limits. Therefore, in some cases, an insured can obtain compensation greater than the amount he was deprived of by the insurance company’s wrongful acts. Insurance bad faith cases are not a mere breach of contract cases but are instead personal injury or tort cases. This important distinction makes greater damage awards possible.

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