Watch the full video at https://rumble.com/vhemph-the-effect-of-the-tort-of-bad-faith.html and at https://youtu.be/Ygvybu6QPZw  I It is undeniable that the insurance industry in the 1950s, 1960s and 1970s abused some insureds to avoid paying legitimate claims. Without a factual basis, the insured were accused of arson or other variations in insurance fraud. Damages payments were denied on the slightest of excuses. Humans were found to have diseases that only horses could catch. Disability benefits were denied because an insured person was wheeled in his wheelchair to church one day and therefore was not completely restricted. Insured persons were declared bankrupt when reasonable claims within policy limits were denied.
To stop this abuse, the courts of the state of California invented the damage of bad faith. It called for a general remedial contract and decided that the breach of an insurance contract without, what the court found were real, genuine or even quite debatable reasons, was transferred from a breach of contract to a new liability. Many other states have followed the lead.
Until the invention of the damage of bad faith was all that an insured could collect from an insurance company that wrongly denied a claim the benefits under the insurance. Following the creation of the torture of bad faith, the courts allowed the insured to also collect the entire panoply of damages, including punitive damages.
Tort for bad faith and the punitive damages that seem to go with it have in my opinion served its purpose. Insurers now have professional claims departments. Insured are treated almost generally with courtesy and respect. More than 90% of all claims are resolved without disputes or arguments. Legitimate claims are paid with alacrity.
Insurance fraud continues to grow. The amount of money taken from insurance companies each year is in the tens or hundreds of billions of dollars. The fear of punitive damages has made the fight against fraud difficult and almost impossible. Even when an insured person is arrested, tried and convicted of insurance fraud or insurance fraud. Attempts will still be made to sue the insurer for torture of bad faith.
Before I withdrew from the practice of the law, I fought daily with insurers who wanted to fight fraud but who found that they had to decide to pay a claim rather than be punished. Sometimes, the determination of unfaithful lawsuits, where there has been no unfaithfulness and an appropriate denial of a claim or refusal to pay a policy, may limit the claim that it must pay more to avoid a potential runoff jury.  I can, as my mentors taught me 53 years ago, confidently say the opinion that an insurance company should spend millions of dollars to defend an uncovered or fraudulent claim and not a penny to pay tribute to an insured who gives a false unfair litigation.
Practical insurance personnel, however, have a need to resolve disputes as cheaply as possible in order to protect the shareholders who want the insurer to make a profit. As a result, the insurer will obey millions for defense contracts and will make a business decision to pay the uncovered loss or fraud, rather than take a chance on an unfavorable judgment.
As with all things in insurance, insurers' attitudes move in cycles. More often than not, I am now asked to testify as an expert in case of disbelief that the insurer insists on being taken to the jury instead of paying a scofflaw.
I can only hope that this cycle continues and more attempts at fraud are defeated.
© 2021 – Barry Zalma
Barry Zalma, Esq., CFE, now limits his practice to working as an insurance consultant specializing in insurance coverage, insurance claims handling, infidelity and insurance fraud almost equally for policyholders and policyholders. He also acts as an arbitrator or mediator for insurance-related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and firstname.lastname@example.org.
Mr. Zalma is the first recipient of the first annual Claims Magazine / ACE Legend Award.
For the past 53 years, Barry Zalma has devoted his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following libraries with books and other materials to enable insurance companies and their claims staff to become liable for insurance.
Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Zalma on Twitter at https://twitter.com/bzalma ; Go to Barry Zalma videos on Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the insurance claims library – https://zalma.com/blog/insurance-claims-  library / Read posts from Barry Zalma at https://parler.com/profile / Zalma / posts; and the last two issues of ZIFL at https://zalma.com/zalmas-insurance-fraud-letter-2/ podcast now available at https://podcasts.apple.com/us/podcast/zalma-on -insurance / id1509583809? uo = 4