WHY IS IT CALLED “BAD FAITH” INSURANCE LAW?

Thanks to senior partner William Shernoff’s precedent-setting case, Egan v. Mutual of Omaha (1979), insurance companies are legally bound by a “covenant of good faith and fair dealing” in treating their policyholders. When an insurer breaches this covenant, by unreasonably delaying or denying payments, for example, it is acting in bad faith and can be sued for actual and consequential damages as well as punitive damages. Hence, although the term sounds negative, it is a huge plus for policyholders, as it provides substantial recourse against insurance companies that mistreat the people they serve.