The Duty of Good Faith and Fair Dealing in Arizona

Under Arizona law, all insurance policies include an implied duty of good faith and fair dealing. This duty ensures that insurers act reasonably, treat policyholders fairly, and prioritize legitimate claims appropriately.

What This Duty Means for You

The duty of good faith and fair dealing compels insurers to:

• Adequately investigate your claim.
• Provide fair and reasonable communication throughout the claims process.
• Promptly resolve claims when liability is clear.

While this duty is not as stringent as the fiduciary obligations imposed under ERISA (Employee Retirement Income Security Act), it still holds insurers accountable for fair treatment. When insurers violate this duty, they may be liable for bad faith and required to compensate you for the harm caused.

The Consequences for Insurers

Arizona takes violations of this duty seriously. If your insurer is found to have breached their duty of good faith, they may face significant legal consequences, including paying damages for the financial and emotional toll their actions caused.

Examples of Bad Faith Practices

Bad faith insurance practices can take many forms. Here are some common examples of prohibited conduct under Arizona’s Fair Claims Practices Act, along with real-world scenarios to illustrate how they may occur:

1. Misrepresenting Facts or Policy Provisions

An insurer might falsely claim a policy doesn’t cover your specific loss or misinterpret the terms of your policy to deny your claim.

Example: You file a claim after suffering a major roof leak caused by a covered storm. Your insurer denies it, citing a nonexistent “wind-only” exclusion.

2. Unreasonable Delays

Failing to process your claim promptly or prolonging communication unnecessarily can indicate bad faith.

Example: After submitting all required documents, months pass with no updates from the insurer. Each time you call, they claim they’re “still reviewing” the claim.

3. Failure to Investigate

Insurers must thoroughly and reasonably investigate claims. Refusal to gather evidence or look into the specifics violates their duty.

Example: Your disability insurance provider denies your claim without consulting your doctor or requesting medical records.

4. Lowball Settlements

Offering an unreasonably low payout for valid claims is another tactic insurers may use to avoid fair compensation.

Example: After a car accident, your insurer offers you far less than the damages and repair costs require, forcing you to shoulder the burden.

5. Forcing Litigation

Some insurers compel policyholders to file lawsuits by refusing to negotiate or settle claims fairly.

Example: Your health insurer denies a clearly covered treatment, stating they’ll reconsider only if you formally sue.

Recognizing these practices can help you identify when your insurer may be acting in bad faith.

Legal Remedies for Insurance Bad Faith

When an insurer acts in bad faith, Arizona law grants policyholders access to a range of legal remedies, going beyond the limits of policy benefits. These remedies are intended to compensate you for the additional harm caused by the insurer.

Types of AZ Insurance Bad Faith Damages You May Be Entitled To:

• Economic Losses: Reimbursement for financial damages caused by the insurer’s actions, such as out-of-pocket expenses or lost earnings.
• Pain and Suffering: Compensation for emotional distress, anxiety, or hardship from the insurer’s behavior.
• Punitive Damages (in egregious cases): A financial penalty imposed to deter the insurer and others from engaging in similar conduct.

Notable Cases of Bad Faith Damages in Arizona

Courts in Arizona have awarded significant damages to policyholders in insurance bad faith cases. These cases serve as a warning to insurers while offering policyholders hope for fair compensation.

Legal remedies provide a critical pathway to justice, ensuring that insurers uphold their duty of good faith.

How to Identify Insurance Bad Faith

Recognizing insurance bad faith isn’t always straightforward. Here are some red flags to watch for:

1. Unexplained delays in claim processing.
2. Sudden changes to policy terms upon filing a claim.
3. Denial of claims without a valid explanation.
4. Poor communication or lack of updates from the insurer.
5. Denying claims based on incomplete or biased investigations.

If you notice any of these signs, contacting an AZ insurance bad faith attorney is the next best step.

Steps to Take if You Suspect Insurance Bad Faith

If you believe your insurer has acted in bad faith, follow these steps to safeguard your rights:

• Document Everything:
  Keep detailed records of all communications with your insurer, including emails, letters, and phone calls. Retain copies of any claim-related documents and policy statements.
• Request a Written Explanation:
  Ask your insurer for written reasons outlining why they denied or delayed your claim.
• Gather Supporting Evidence:
  Compile medical records, photos, estimates, or other relevant information to strengthen your position.
• Consult a Lawyer:
  An insurance bad faith lawyer can evaluate your claim, identify bad faith practices, and advise you on how to proceed.
• File a Complaint:
  Consider filing a formal complaint with Arizona’s Department of Insurance and Financial Institutions to report the insurer’s conduct.

Acting quickly can improve your chances of achieving a favorable outcome.