All insurance policies contain an implied obligation applicable to the insurance
company of "good faith and fair dealing" towards its insured. When a claim is
presented, this implied obligation means that an insurance company cannot simply
look for reasons not to pay; the company must make a thorough investigation
of the claim, must consider all reasons and circumstances that might support
the claim, and must give as much consideration to the financial interest of
the insured as it gives to its own financial interest.
If an insurance company refuses to pay a claim that should be paid or offers
to settle a claim for less than it knows the claim is worth or denies a claim
without adequate investigation, this could give rise to a bad faith claim against
the insurance company. If the company is found to have acted in bad faith, the
insured is entitled to all damages resulting from that action, including certain
types of damages that would not be available just for breach of contract. In
cases of extreme or outrageous misconduct by an insurance company, the insured
also may be entitled to receive punitive damages .
