A Policyholder has Recourse Against their Insurance Company in the form of a Lawsuit.
A denied business loss claim can ruin a business and insurance companies know that even though an insured individual can file a lawsuit at no upfront cost to the insured (i.e., a contingency-based lawsuit), such lawsuits are time-consuming. In many cases concerning widespread losses, insurance companies make a financial bet that their payout in the form of lawsuits would be less than if they honored their claims.
Business interruption insurance is, by definition, a first-party claim. A “first-party claim” involves a policyholder filing a claim against their own insurance company. This terminology differs when a claimant asks someone else’s insurance to cover a loss. That is called a “third-party claim” and often rises in the case of a vehicle collision.
Many states offer additional protection to first-party claimants to prevent insurance companies from acting in “bad faith.” In the insurance context, “bad faith” means that the insurance company did not act fairly.
Examples of “bad faith” range from an insurance company misrepresenting the policy’s language to avoid paying a claim to unreasonable demands on the policyholder to prove a covered loss and many circumstances in between. Upon finding “bad faith,” it is not uncommon for a Court to award three times the number of the insured’s damages against the insurance company. Moreover, they require the company to pay the insured’s attorney’s fees. Such practices help hold insurance companies accountable.
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