“Bad faith” is a term that we sometimes see in the realm of maritime and boating litigation. Everyone has a rough idea of what it means without looking up the term up in a law dictionary. What may come to mind is the expression, “dirty pool.” It basically means not being professional or not playing by the rules.
It isn’t a new concept. If you pull up court decisions from the past four or five decades involving boating, from property damage to injury, you’re likely to see the term arise in a portion of them. A boat on a trailer is damaged by a falling branch in a windstorm. A boat at a mooring sinks spontaneously. The insurance carrier denies the windstorm claim because the boat was left in a bad spot. The carrier denies the sinking claim because proper inspections would have revealed a deteriorated hose clamp at the raw water intake.
After having their claim denied, the owner may go to court. They may try to argue elements of “bad faith” or even “fraud.” Fraud generally requires intentional and deceitful conduct, although the term is sometimes used loosely. But “bad faith” could cover a wide blanket of elements. Let’s look at some examples of bad faith.
Bad faith could vary by state law, but there are some universal forms of conduct that fit the bill in most any jurisdiction. This could include denying straightforward claims for no justifiable reason, almost as if by a knee-jerk reaction. In some settings, this might seem to take place almost by a written script, as if denial is the default initial response. Related to this is the process of unreasonably stalling the settlement process. It’s true that nothing in insurance law requires either side to settle. Settlement may simply be a sound business decision in the interest of economically disposing of claims in a practical manner. Although no one is forced to pursue settlement, needlessly stalling the process could be considered bad faith.
Another form of bad faith is making low ball offers. No one is saying that the claimant must be presented with a generous offer. But it can be bad faith if the offer has little basis with the scope of damages. If someone is injured on a jet-ski by a vessel that was 100% liable for a navigation rule violation, and the jet-ski operator needs two orthopedic surgeries and six months of therapy, as well as lost wages because they were out of work for four months, an offer of $7,500 for the total ball of wax covering their anguish and medical bills would be considered low ball. If a claimant insists on eight brand new injectors from the insurance carrier because lab analysis showed negligible and inconsequential traces of contaminants in the fuel system after a partial sinking, refusal to pay for new injectors would likely not be seen by a court as low-ball if the old injectors did not warrant replacement.
Another form of bad faith could be introducing unnecessary obstacles to the claims process. This could include burdensome and irrelevant requests for information or documents. On the flip side of this could refusal to properly investigate a claim. If a carrier splits liability down the middle in a collision involving two vessels simply because it was dark and visibility was poor… instead of taking the trouble to investigate the relative positions and headings of both vessels, that could arguably amount to bad faith.
Not honoring the provisions of a policy is another example. Deceit could also be a form of bad faith. Some claimants might argue such elements separately as fraud, but deceit could take various forms. It could include not providing accurate information about the insurance policy. Bad faith can also include intimidation or unjustified investigations.
It’s important to remember that bad faith does not mean the insurance carrier simply played hardball. They’re allowed to do that. That’s the nature of the industry. Unfortunately, people do not always play nice either. They sometimes try to get one over on the insurance carrier. And insurance carriers are not dummies. They have the right to be suspicious of claims until everything is verified. They have the right to be less friendly in real life than the likable actors who appear in their TV commercials. But what is required is that a claim be handled in a professional and reasonable manner.
Tim is a NY-based maritime attorney and has taught law at SUNY Maritime College. Erol is a graduate of CUNY School of Law and Farmingdale State College.