A bad faith insurance claim may arise if an insurance company is accused of wrongful conduct, that is unreasonable or malicious, fraudulent or oppressive. These claims may arise when an insurance company refuses to pay benefits for a valid claim. If there is malicious conduct, this may expose the insurance company to having to pay punitive damages if the claim against it is proved.

The parties involved in a dispute of this nature may decide to try to resolve it through mediation or arbitration. In mediation, the mediator does not have authority to impose a decision on the parties. The mediator’s role is to help the parties reach an agreement together. In arbitration, the arbitrator conducts a hearing similar to a litigated case. He or she renders a legally-binding decision.

Arbitration proceeds much like a typical court case. Each side can call witnesses, present evidence and make arguments through their attorney. Mediation is more informal in nature and often levels the playing field between parties who may be on different power levels.

Both forms of alternative dispute resolution have advantages over traditional litigation. Mediation and arbitration are both confidential processes. Either one can help avoid the bad publicity potential that arises with litigation. This may be an important consideration in a bad faith case. Both processes are usually able to wrap up the case in far less time than litigation would entail. In litigation, it may take substantial time to convince an insurance company of the merits of the case. It must often be convinced that the denial of the claim was wrong. Mediation or arbitration may get the insurance company to accept this in a way that litigation might not. In some situations, the insurance company may agree to pay on the original claim to avoid the furtherance of a bad faith claim.