Insurance Bad Faith in Alabama: When a Denial May Become a Tort

Insurance policyholders in Alabama have a right to expect that when a hurricane, tornado, wind, or other covered event occurs, their insurance carrier will work in good faith to resolve the policyholder’s claim. In many cases, a policyholder requires immediate funds to secure their property and relocate. Policyholders also have the right to expect that their insurance company will pay what’s necessary to restore the property, according to the terms of the insurance contract.

If your insurance company denies, delays or underpays your claim, you may have a claim for the benefits due under your insurance contract. Depending on the facts and circumstances, the insurer’s conduct may also support a separate claim for bad faith under Alabama law. Please contact our Birmingham, AL insurance dispute lawyers to discuss your claim, the benefits that may still be owed, and whether additional remedies may be available.

What are the requirements of a bad faith claim in Alabama?

In Alabama, based on Alabama court decisions (such as National Security Fire & Casualty Co. v. Bowen), the elements of a bad faith claim generally include the following:

• You have an insurance contract
• The insurance company breaches that contract, such as by failing to pay your claim according to the terms of your insurance policy
  • The denial of your claim can be actual (such as by a written letter)
  • The denial of your claim can be constructive where the delay is so great that it effectively amounts to a denial, or where sufficient delay is coupled with wrongful intent
• The insurance company intentionally refuses to pay your claim
• The insurance company has actual knowledge that it does not have an arguable/debatable reason or a reasonably legitimate reason for refusing to pay your claim. The absence of a legitimate reason can be legal or factual

You, the policyholder, have the burden of proving that the insurance company acted in bad faith. It is important to note that a claim denial, delay, underpayment, or even a breach of the insurance policy does not, by itself, necessarily establish the separate tort of bad faith.

Generally, the policyholder must submit a claim and provide supporting information before the insurance company can evaluate and respond to the claim. At McWherter Scott & Bobbitt, we can help you identify and present the evidence and documentation to support your insurance claim.

What conduct supports a bad faith insurance claim in Alabama?

Conduct that may support a bad faith claim by the insurance carrier includes:

• Intentionally or recklessly failing to adequately investigate your claim
• Failing to fairly review material evidence submitted in support of your claim
• Unreasonably delaying payment under circumstances that may indicate more than an ordinary claim-processing delay
• Making intentional misrepresentations about the terms of the insurance contract
• Relying on a reasons for denial that is not supported by the claim investigation
• Manufacturing a basis for denying the claim rather than fairly evaluating the available evidence

Whether this or other conduct supports a bad faith claim depends on the particular facts, the policy, the insurer’s investigation, and the reasons given for its decision. Poor communication, delay, an underpayment, or an incorrect coverage decision may create a significant insurance dispute without necessarily establishing the separate tort of bad faith.

The two methods of proving insurance bad faith in Alabama

Alabama recognizes one tort of bad faith, although Alabama courts have historically discussed “normal” and “abnormal” methods of proving a bad faith claim.

Normal bad faith

Normal bad faith generally involves the failure to pay your claim.

Generally, a normal bad faith claim requires that the policyholder show that there was not an arguable or legitimate reason for denying the insurance claim.

Abnormal bad faith

Abnormal bad faith generally involves issues with the insurer’s investigation or evaluation of your claim.

This method of proving bad faith requires satisfying the elements above and showing that one or more of the following conditions apply:

• The insurance company intentionally or recklessly failed to investigate your claim
• The insurance company intentionally or recklessly failed to provide a cognitive review/evaluation of your claim
• The insurance company “manufactured” a debatable explanation for denying your claim
• The insurance company relied on an ambiguous interpretation of the policy to deny your claim. Generally, all ambiguities in an insurance policy are construed against the insurance company since they drafted the insurance policy.

Even under an abnormal bad faith theory, whether the insurer had a reasonably legitimate or arguable basis for its decision remains an important part of the analysis.

What damages may be available when an insurance company acts in bad faith in Alabama?

Contract damages

First, you have the right to be paid the benefits due under the policy for covered damage to your property. These are the damages the insurance company should have paid under the terms of the contract. Essentially, these are breach of contract damages.

Tort and punitive damages

Second, in Alabama, if the insurance company refuses to pay your claim in bad faith, then the policyholder may have a separate tort claim. A bad-faith refusal to pay is tortious, not merely a breach of contract.

Tort damages for bad faith may include damages for mental distress (pain and suffering) and certain additional economic loss, over and above the damages due if the claim had been properly paid, depending on the fact and circumstances of the case.

Punitive damages

Additionally, the policyholder may be entitled to punitive damages if clear and convincing evidence shows that the insurance company consciously or deliberately engaged in oppression, fraud, wantonness, or malice.

Punitive damages are not automatic simply because an insurer breached the policy or because a bad faith claim is asserted. Whether punitive damages may be available depends on the evidence and the requirements of Alabama law.

How much time do I have to file a bad faith tort claim in Alabama?

Generally, the time limit for filing a bad faith claim in Alabama is two years from the bad faith refusal or from when the policyholder knows facts that would reasonably lead to discovery of the bad faith refusal.

Determining when that period begins can be fact-specific, and other contractual or statutory deadlines may also apply to the underlying insurance claim. Policyholders should have potential deadlines evaluated promptly.

What types of insurance disputes do you handle in Alabama?

At McWherter Scott & Bobbitt, we handle many different types of insurance disputes in Alabama. These disputes include damage due to

• Earthquake damage
• Fire, smoke, and ash damage
• Flood damage
• Hail damage
• Hurricane damage
• Storm damage
• Tornado damage
• Vandalism
• Water and mold damage
• Wildfire damage
• Wind damage

Contact McWherter Scott & Bobbitt today

If you have questions about how your homeowner’s, commercial property, or business interruption claim is being handled, it may be worth having the claim reviewed before accepting the insurance company’s position. Our Birmingham, Alabama insurance dispute lawyers can evaluate the policy, the insurer’s investigation and explanation, and the claim record to determine whether the claim has been properly evaluated, what benefits may still be owed, and whether the circumstances support additional remedies under Alabama law. Contact McWherter Scott & Bobbitt to discuss your claim and the options available to you.Please call us or use our contact form to schedule a consultation.