Skip to Content

Insights & News

Bad Faith Insurers: Helping Business Owners Resolve Their Issues Through Litigation

Business and Commercial DisputesLitigation By Binnall Law Group - 2021/09/17 at 09:59am

While homeowners often complain about the difficulty of getting their insurers to pay claims, businesses sometimes fare even worse in the claims department. Insurance costs represent a sizable chunk of cash for every business and nonprofit organization in Virginia. Yet when they file a claim, or someone files a claim against them, many insurers drag their heels and either deny claims or refuse to act on them in a timely fashion. 

Bad faith insurance litigation is sometimes the only way to get results. Companies mired in an insurance dispute would do well to consult an Alexandria business attorney to review their options for relief through a bad faith claim.  

Implied Duty of Good Faith in Insurance Contracts

Insurance is based on a contract between the insured entity who purchased coverage and the insurer who pledges to cover damage as specified in the policy. Courts in Virginia have ruled that just as in other types of contracts, parties to an insurance contract must abide by an implied duty of good faith and fair dealing. An Alexandria business attorney could review the circumstances of a case to determine whether certain practices arguably violated this duty.

Insurers owe a duty of good faith in both first-party claims filed by the insured and third-party claims filed by someone injured by the actions of the insured. The duty to act in good faith in third-party claims may be traced more to statutory insurance provisions than contractual duty. However, it could be argued that the insurer’s contractual obligation could cover third-party claims since if the third party does not receive compensation from the insurer, they will seek it directly from the insured.

Unfair Practices Under Virginia Law

Virginia insurance law in Va. Code §38.2-510 sets forth a virtual laundry list of business practices that are prohibited on the basis of unfairness. The statutory language suggests these actions must be performed with sufficient frequency that they are evidence of a “general business practice,” but proof of this frequency may not be required in a given case. 

Unfair practices include:

  • Refusing to pay claims “arbitrarily and unreasonably”
  • Failing to act “reasonably promptly” to communications about insurance claims
  • Not attempting in good faith to make prompt and fair settlements of claims with “reasonably clear” liability
  • Misrepresenting facts or policy provisions related to coverage
  • Failing to determine claims within a reasonable time after receiving proof of loss statements

Many of the standards in the statute, such as “reasonable” promptness, could be open to interpretation. A knowledgeable Alexandria business attorney could review precedent to ascertain how the standards would apply in a particular set of circumstances. 

Discuss Potential Bad Faith Insurance Litigation with an Experienced Alexandria Business Attorney

The delays caused by insurance delays can be crippling to a business. Uncertainty, lack of capital, and other consequences of unsatisfactory insurance claims often result in huge losses. Initiation of bad faith insurance litigation could prompt the desired action from an insurer, but if not, the evidence gathered could persuade a court to move the claim toward the desired result. To learn how bad faith insurance litigation could resolve an issue in your business, schedule a consultation with an experienced Alexandria business attorney at Binnall Law Group today.