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Insurance companies may use settlements to hide bad faith actions

On Behalf of | Jan 15, 2024 | Bad Faith Insurance

There is naturally a degree of tension in the relationship between an insurance company and policyholders. Insurance companies want as many people as possible to buy policies with them, but they also want to minimize how much they pay out in large claims. Most insurance companies are for-profit organizations, and even those that aren’t often seek to minimize losses caused by sizable payouts whenever possible.

Left to their own devices, businesses might default on their obligations and mistreat consumers who paid for years to carry insurance protection. Therefore, bad faith insurance laws exist in Oklahoma and elsewhere to regulate the insurance industry. These laws create certain obligations for insurance providers and give policyholders the right to litigate in certain circumstances.

In general, an insurance company has a legal obligation to uphold its insurance policies in good faith. The failure to do so can lead to a bad faith insurance lawsuit brought by frustrated policyholders. One of the ways that companies hide misconduct is through settling large claims.

Why settlements can be problematic

For someone with major expenses, a settlement may seem very tempting. They can quickly access financial compensation to cover their costs if they accept the settlement offer. Settling an insurance claim typically ends the company’s liability. They pay a specific amount and then no longer have any financial responsibility for that particular incident. The person filing the claim typically signs an agreement absolving the insurance company of future obligations.

Unreasonably low settlements are a bad faith practice

A settlement is often for significantly less than the maximum amount of coverage available through an insurance policy. It may also represent far less than the full amount of the damages someone suffered. Insurers should not use manipulative tactics to sidestep their legal obligations to policyholders. Offering a settlement that is high enough to tempt someone but low enough to leave them with major losses that should rightfully be covered is a bad faith practice.

Bad faith approaches violate the presumed intent behind obtaining an insurance policy. Thankfully thought, in scenarios where someone agreed to an inappropriately low settlement, they may still have the option of fighting back against the insurance company. Reviewing policy documents can be a good starting place for those who believe that they are the victims of bad faith insurance practices.