DO INSURANCE COMPANIES SOMETIMES ACT IN BAD FAITH BECAUSE OF THEIR OWN FINANCIAL PROBLEMS?
Everybody should realize that insurance companies make money by investing the money they receve in premiums paid by their insureds. Does anyone think that insurance companies are any better at investing their money than any of the wall street investment banks that made such bad decisions?Aside from all the press coverage of AIG’s problems, the media has basically overlooked the fact that many insurance companies are having significant financial problems. In fact just by a little internet searching, I learned that AIG is not the only insurance company that is requesting Federal bailout money, and that A.M. Best has downgraded its credit ratings of some prominent insurance companies and their coprporate parents (your insurance company may be a subsidiary of a much larger group/holding company).Over the years we have seen insurer’s adjusting claims in indefensible ways when the insurance company is in financial trouble.One example that sticks in my mind was a small one man roofing contractor, who basically worked out of his home. He had resurfaced a roof on a warehouse. We had several days of torrential rains, and the roof collapsed. The roofing contractor was sued, and he turned the claim in to his liability insurer. The insurer denied the claim on the silly basis that the only roof that the liability policy would cover was the roof on his own office!We sued the carrier, and forced them to cover the suit and pay the loss, and very shortly after we finished, the insurer went into receivership, and was declared insolvent.The point is, that whether you are an insured looking to your own insurance company to protect you, or you are a victim making a claim, the reality is you’d better be aware of the insurer’s conduct, and pay attention to whether the conduct is because of financial problems the insurer is having outside of your personal situation.