When an insured is unsatisfied with the insurer’s performance under a policy, a civil action for breach of the insurance contract can be filed. In North Carolina and elsewhere, an insurance policy is a legal contract subject to the laws of contract. Whenever the insurer violates the agreement, a lawsuit for breach of contract may be filed against the company. Of course, there are situations where the roles are reversed and the insurance company may sue the insured for alleged breaches.
One particular type of business litigation against an insurance company is a suit for bad faith performance. This alleges some form of fraud or deceptive action by the insurance company. This often comes up in disputes over personal injury coverage but may arise in other contexts.
Most states subscribe to the principle that each party to a contract has a duty of good faith and fair dealing. That principle is useful in holding the insurer to a high level of performance. In a South Carolina case recently, the owners of an auto body collision company sued State Farm Insurance claiming defamation, unfair trade practices, and breach of contract.
The lawsuit makes some rather shocking charges. It asserts that State Farm fraudulently tried to get the plaintiff and others to agree to repair automobiles at a reduced rate in return for referrals and prompt adjustment of claims. Plaintiff alleges the insurer tried to get it and other companies to accept the State Farm estimate of damage without doing their own appraisal.
The insurer allegedly tried to get the companies to use inferior parts instead of new parts, to repair parts needing replacement, and to ignore damages possibly unrecognizable by customers. It raises shocking but not surprising charges. Similar unethical practices have been reported and investigated against insurers in the past, often after revelations by former employees of the companies.
These prior charges have occurred in North Carolina and nationwide. The truth of these particular allegations will be tested in the lawsuit, which now goes into a discovery phase. It will be interesting to see to what extent the alleged scheme, which goes far beyond the mere assertion of a breach of contract, can be proved by the plaintiff.
Source: bodyshopbusiness.com, “South Carolina Body Shop Files Suit Against State Farm“, , March 28, 2014