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When you purchase insurance, it helps to give you peace of mind and, most importantly, protect you when the worst-case scenario occurs. When you get in a car accident in Albuquerque, you expect your insurance company will cover you; when you have damage to your home, you expect an insurance company will cover you; or when your family member has life insurance and passes away, they expect their policy will cover them. 

Unfortunately, if an insurance company fails to follow through with the terms of the policy, that results in a claim against your insurance company for what is called bad faith. That isn’t just a breach of contract but a breach of trust. 

Your insurance company owes you several duties, including a duty of good faith and fair dealing to you, meaning they must operate fairly and honestly or, more generally, treat you as they would themselves. Failing to meet those duties generally constitutes insurance bad faith.

Under New Mexico state statutes, some specific examples of bad faith insurance behavior include:

• failing to pay out a claim properly;
• making misrepresentations to you about your insurance; 
• failing to acknowledge and act promptly on your claims;
• failing to adopt and act on policies to investigate insured’s claims promptly;
• failing to accept or deny coverage in a reasonable time;
• failing to promptly and fairly settle the insured’s claims when liability has become clear;
• failing to explain the basis for coverage denial promptly;
• requiring insureds to bring litigation to cover money due under their insurance policy.

This bad faith behavior brings rise to a bad faith insurance claim. It is not specific to any type of insurance, though; it can occur with auto insurance, health insurance, homeowners’ insurance, life insurance, and just about any insurance you are paying for in New Mexico. 

In New Mexico, these claims can be brought against your insurance (a first-party bad faith claim) and, in limited situations, against an opposing party (a third-party bad faith claim). Situations for a bad-faith third-party claim are generally tied to car insurance. A first-party claim, though, is one in which an insurance company fails to meet its duty to you—its insured. 

When a bad faith claim is brought, not only can insurance companies be responsible for compensatory damages (damages to compensate you for your loss), but also punitive damages (damages to punish the insurance company for its bad behavior), awards of attorney’s fees, and in some severe circumstances treble (or triple) damages may be awarded against the insurance company. 

Examples of Bad Faith Insurance Practices

Now, the specifics of a claim generally depend on the specifics of your policy, but some examples of a bad faith insurance claim include:

• your auto insurance company refuses to cover your personal injury claim when an uninsured driver hits you, and liability is clear;
• your homeowner's insurance company fails to investigate a flood claim in your house and refuses to cover the claim;
• your loved one's life insurance policy refuses to pay out (or unnecessarily delays payment) and will not provide you with any reasoning;
• your insurance company tells you your coverage is at a certain level, and when you make a claim, they inform you that your coverage is less (its always good to take a quick note after a call from your insurance company regarding representations they make to you);
• your health insurance company confirms coverage for a certain type of treatment, and after you receive the treatment, coverage is denied;
• you increase your auto insurance coverage to a higher level, and after getting injured, your insurance company refuses to pay that higher coverage number despite injuries to that level (a 2023 Santa Fe, New Mexico wrongful death case with similar facts resulted in a $36 million dollar jury verdict). 

What can you do to best protect yourself?

• Document all decisions and communications with an insurance company. If they won’t give you documentation of their decision, take notes immediately after speaking with your insurance company.
• If a claim is denied, request written clarification for term denials and a copy of your policy.
• Work to understand your policy and the terms of coverage, ask questions, and keep records of your conversations. The best way to confirm or push to ensure coverage is to understand your policy and what your insurance company has promised you.
• Most importantly, if you feel your insurance company has unfairly denied you coverage, call an attorney at Singleton Schreiber so we can discuss your case and potential next steps. 

What can an attorney do for you?

Often, people may not realize that they are in a situation where their insurance has exposed itself to bad faith liability at all. Oftentimes, people take their insurance’s word for it and assume they know what is right. Unfortunately, insurance companies frequently engage in behavior that can or does prejudice their insureds. This can lead to financial strain, emotional strain, and overall challenges from the insurance company, taking away the peace of mind you usually get from your insurance coverage. 

Reaching out to an attorney is important because:

1. the insurance company already demonstrated they would not pay, and
2. lawyers can assist you in navigating the process from a demand letter, to filing a complaint (the legal document that starts a lawsuit), to your deposition, to mediation, to potentially trial.  

Singleton Schreiber New Mexico handles life, property, casualty, fire, auto, and health-based first-party/consumer claims. Please feel free to reach out so we can better help. A consultation with an attorney is free!