What Constitutes a Bad Faith Insurance Claim in Nebraska?
In Nebraska, an insurance company is not merely a passive party that holds your premiums; it has a legal duty to act in good faith and deal fairly with its policyholders. This duty is implied in every insurance contract under state law. A bad faith insurance claim arises when the insurer breaches this duty by placing its own financial interests above the rightful claim of its insured.
This breach can manifest in two primary ways:
- Bad Faith in Claim Investigation and Handling: This occurs when an insurance company fails to properly investigate, evaluate, or process a claim. It involves an unreasonable delay, a failure to communicate, or a refusal to pay a claim without conducting a thorough and prompt investigation. The insurer must have a reasonable basis for its actions; acting on a mere suspicion or without adequate evidence can constitute bad faith.
- Bad Faith in Denying a Claim: This is a subset of the first category but is significant enough to highlight separately. An insurer acts in bad faith when it denies a claim without a reasonable basis for doing so. If the policy language is clear, the loss is covered, and the claim is valid, a denial without a legitimate, defensible reason is a direct violation of the insurer’s duty of good faith.
Nebraska courts analyze these claims by asking whether the insurer had a reasonable basis for denying the claim or for its delay in payment. If the reason for denial is “fairly debatable,” the insurer is generally entitled to debate it and may not be found liable for bad faith. However, the insurer loses this protection if its actions are motivated by a dishonest purpose, moral obliquity, conscious wrongdoing, or a reckless disregard for the rights of the insured.
Common Tactics Used by Insurance Companies Acting in Bad Faith
Recognizing the signs of bad faith is the first step toward protecting your rights. Insurers may employ various tactics to undervalue, delay, or deny your legitimate claim.
- Unreasonable Delay: Dragging out the process indefinitely, requesting the same documents repeatedly, or failing to respond to communications in a timely manner are classic delay tactics. The goal is to frustrate the policyholder into accepting a lowball settlement or abandoning the claim altogether.
- Failure to Investigate: An insurer has a duty to conduct a prompt and reasonable investigation into the facts of a claim. Bad faith occurs when they ignore evidence that supports your claim, fail to interview key witnesses, or make a denial decision based on an incomplete file.
- Lowball Settlement Offers: Offering a settlement amount that is significantly lower than the value of the claim, especially when the value is clear from the evidence, is a form of bad faith. This tactic preys on the financial pressure a claimant may be under.
- Misinterpretation of Policy Language: Intentionally twisting or misrepresenting the terms of your insurance policy to justify a denial is a severe act of bad faith. This often involves taking policy exclusions out of context or applying them to situations they were not intended to cover.
- Denial Without Explanation: A flat denial of a claim without providing a clear, written explanation referencing the specific policy language that justifies the denial is a major red flag.
- Failure to Defend (Liability Insurance): In the context of a third-party liability claim (like under a homeowner’s or auto policy), the insurer has a duty to defend you against lawsuits. Refusing to provide a legal defense when a lawsuit falls within the policy’s coverage can be bad faith.
Nebraska Laws Protecting Policyholders: The Tort of Bad Faith
Nebraska is among the states that recognize a cause of action for the “tort of bad faith.” This is a crucial legal distinction. A breach of contract claim, which is what a simple denial of a claim would be, is generally limited to the amount owed under the policy. However, by recognizing bad faith as an independent tort, Nebraska law allows successful plaintiffs to recover damages beyond the face value of the policy.
This means that if you can prove the insurer acted in bad faith, you may be entitled to compensation for:
- Consequential Damages: These are losses you suffered as a direct result of the bad faith denial. For example, if a denied business interruption claim caused your company to go bankrupt, you could recover those losses. If a denied health insurance claim led to a worsened medical condition, you could be compensated.
- Emotional Distress: The immense stress, anxiety, and anguish caused by an insurer’s wrongful refusal to pay a needed claim can be compensable under Nebraska law.
- Attorney’s Fees and Costs: Nebraska law (Neb. Rev. Stat. § 44-359) allows a court to award reasonable attorney’s fees to the plaintiff in an action against an insurance company where the insurer refused to pay the claim without reasonable cause. This statute is a powerful tool for policyholders.
- Punitive Damages: In cases where the insurer’s conduct is especially egregious, willful, wanton, or malicious, a court or jury may award punitive damages. These are not meant to compensate the victim but to punish the wrongdoer and deter similar conduct in the future.
The Nebraska Supreme Court, in cases like Radecki v. Mutual of Omaha Ins. Co., has firmly established that an insurer’s failure to pay a claim without a reasonable basis can give rise to this tort action, exposing the company to these significant additional liabilities.
The Process of Pursuing a Bad Faith Claim with a Nebraska Lawyer
Fighting an insurance giant on your own is an uphill battle. They have teams of experienced adjusters and lawyers. Leveling the playing field requires skilled legal representation. The process typically unfolds as follows:
- Case Evaluation: Your attorney will review your insurance policy, all correspondence with the insurer, the denial letter (if one was provided), and all evidence supporting your underlying claim (e.g., repair estimates, medical reports, police reports). This helps determine if the insurer’s actions were unreasonable.
- Establishing the Valid Underlying Claim: A bad faith case is built upon a valid underlying insurance claim. Your lawyer must first establish that your claim should have been paid under the terms of the policy. You cannot prevail in a bad faith suit if the original denial was correct.
- Demand Letter and Notice: Before filing a lawsuit, your attorney will often send a comprehensive demand letter to the insurance company. This letter outlines the facts, the policy provisions, the evidence of coverage, and the specific ways in which the company acted in bad faith. It serves as a final opportunity for the insurer to pay the full value of the claim and, potentially, additional damages to avoid litigation.
- Filing a Lawsuit: If the demand letter does not resolve the matter, your attorney will file a lawsuit in the appropriate Nebraska court. The complaint will allege causes of action for both breach of contract (for the unpaid claim) and the tort of bad faith (for the unreasonable conduct).
- Discovery: This is the fact-finding phase of litigation. Your lawyer will use tools like interrogatories (written questions), requests for production of documents (e.g., the insurer’s entire claim file, internal manuals, employee training materials), and depositions (sworn out-of-court testimony) of insurance adjusters and managers. The goal is to uncover the internal processes and motivations behind the denial.
- Expert Testimony: Bad faith cases often require expert witnesses. An expert on insurance industry standards can testify that the insurer’s actions fell below the accepted standards of practice, which is powerful evidence for a jury.
- Settlement Negotiation or Trial: Most civil cases settle before trial. However, having a lawyer prepared to take your case to a jury is essential for achieving a fair settlement. If a settlement cannot be reached, your attorney will present your case at trial, seeking to prove the insurer’s bad faith and recover all applicable damages.
How a Nebraska Insurance Bad Faith Lawyer Can Help You
Engaging a lawyer who specializes in insurance bad faith law is critical. Their expertise provides several distinct advantages:
- Understanding of Insurance Law: They possess deep knowledge of Nebraska insurance statutes, regulations, and the body of case law that defines “bad faith.” They can navigate the complex policy language and identify breaches of duty that a non-lawyer would miss.
- Investigation and Evidence Gathering: Lawyers know how to build a compelling case. They work with investigators, accident reconstructionists, medical experts, and economists to fully document your losses and the insurer’s misconduct.
- Handling All Communications: Once you hire an attorney, all communication with the insurance company should go through them. This protects you from saying anything that could be misconstrued and stops the insurer from using manipulative tactics on you directly.
- Leverage in Negotiations: Insurance companies take claims much more seriously when they know the policyholder is represented by a skilled litigator. The immediate prospect of facing discovery and a potential jury verdict for extra-contractual damages often motivates them to offer a fair settlement.
- Maximizing Your Recovery: An attorney’s sole objective is to get you the full and fair compensation you are owed under Nebraska law, which includes not just the policy benefits but also consequential damages, emotional distress, attorney’s fees, and, where appropriate, punitive damages. They fight to make you whole after the insurer’s betrayal of its duty.
