Case Denied: B A D F A I T H

No this is not about "Religion!"  It is however about "Relationships."

Remember that PROMISE the Insurance Company sells you in exchange for your money and calls it a Premium?  Well "Bad Faith" is also a legal term used in Insurance Claims when your Insurance Company wrongfully and with possible "Malice" and a few other legal terms denies your claim.

Most insurance policies both Homeowners and Commercial have extended coverage for "legal liability" and in the event that you are sued, they (insurance company) should defend you.  There is a legal saying in this regard concerning you insurance policy that states "There is a Greater duty to Defend than to Indemnify!"  In essence even if there is a question as to coverage the Insurance Company will and should  provide you with a defense.  If the Insurance Company after starting your defense feels there is no coverage for your claim they can file a Declaratory Relief action with the courts.  This involves presenting your case to a Judge and asking the Judge to make a ruling on the merits of the claim and if in fact there is or is not coverage.  If the Judge rules no coverage, the Insurance Company will continue the defense but issue a Reservation of Rights letter informing the policy holder that if liability is found against them, the insurance company may not be paying for the claim.  This of course sets up all kinds of legal situations and it is highly recommended that before you proceed down this path you hire an attorney.
The Bad Faith part of the lawsuit against the carrier comes in when the claim and or the coverage or both is Denied by the Carrier.  If the policy holder (you) does not agree with the findings and you feel the insurance company acted in "Bad Faith" towards you, you can file a Bad Faith Lawsuit.  If you win this lawsuit, along with damages you are also awarded "Punitive Damages."  Punitive Damages normally set by the Judge or Jury are equal to a percentage of the worth of the company you are suing.  This award can be in the millions of dollars or as little as one dollar, so Bad Faith lawsuits are taken very seriously by the Insurance Company.

Here is the Definition of "Bad Faith" as found in Wikipedia: 
 "An insurance company has many duties to its policyholders. The kinds of applicable duties vary depending upon whether the claim is considered to be "first party" or "third party." A common first party context is when an insurance company writes insurance on property that becomes damaged, such as a house or an automobile. In that case, the company is required to investigate the damage, determine whether the damage is covered, and pay the proper value for the damaged property. Bad faith in first party contexts often involves the insurance carrier's improper investigation and valuation of the damaged property (or its refusal to even acknowledge the claim at all). Bad faith can also arise in the context of first party coverage for personal injury such as health insurance or life insurance, but those cases tend to be rare. Most of them are preempted by ERISA.[5]

Third party situations (essentially, liability insurance) break down into at least two distinct duties, both of which must be fulfilled in good faith. First, the insurance carrier usually has a duty to defend a claim (or lawsuit) even if some or most of the lawsuit is not covered by the insurance policy. Unless the policy is expressly structured so that defense costs "eat away" at the policy limits (a so-called "self-consuming" or "burning limits" policy), the default rule is that the insurer must cover all defense costs regardless of the actual limit of coverage. In one of the most famous decisions of his career (involving Jerry Buss's bad faith lawsuit against Transamerica), Justice Stanley Mosk wrote: "[W]e can, and do, justify the insurer's duty to defend the entire 'mixed' action prophylactically, as an obligation imposed by law in support of the policy. To defend meaningfully, the insurer must defend immediately. [Citation.] To defend immediately, it must defend entirely. It cannot parse the claims, dividing those that are at least potentially covered from those that are not."[6]"