Insurance companies that fail to fulfill their promises are acting in bad faith. They do this by either refusing to cover a valid claim from a policyholder or failing to investigate and settle the claim without undue delay. They also act in bad faith when they deny an otherwise legitimate claim by misrepresenting the language of the insurance contract to the policyholder.
Concealing limitations and exclusions of a policy to policyholders before they buy the policy is an insurance bad faith practice. Another example of an insurance bad faith tactic is when insurance companies pressure policyholders to accept an unreasonable settlement offer.
Insurance Bad Faith: What is It?
Insurance bad faith is a term that describes a situation where the insurer breaches the duty of good faith and fair dealing it owes the insured. This duty calls for the insurer to treat the insured reasonably, justly, and in good faith. It also calls for the insurer to investigate and resolve claims fairly. This requirement may involve the insurer carefully reviewing both the grounds for paying the claim and for denying it.
Dealing with Insurance Bad Faith
Bad faith insurance can affect any contract or an insurance policy, from homeowners’ insurance to auto or life insurance. Some reasons why life insurance claims are denied include missed premium payments, lack of beneficiaries on the policy, and missing or inaccurate information on the policy. A life insurance attorney can review the reasons for claim denial and determine whether the policyholder has grounds for filing a bad faith insurance lawsuit.
The attorney can compile enough evidence to prove beyond reasonable doubt that the insurance company violated its contractual obligation to the policyholder. By doing this, the attorney helps the policyholder recover compensatory damages, above and beyond the delayed or denied life insurance benefits. These damages cover out-of-pocket expenses, lost wages, and attorney’s fees.
If the insurance company acted grossly negligent, the policyholder may be eligible for punitive damages. These damages seek to compensate the policyholder and penalize the insurance company for its misconduct. They also discourage the insurer from breaching its contractual obligation to other policyholders.
Why Do Insurers Engage in Bad Faith Practices?
Insured consumers should understand that insurance companies are for-profit organizations that aim to make money. These companies will try to find ways to avoid settling claims when possible. Insurance companies make profits by maximizing insurance premiums collection and minimizing claims payment. This tempts some insurance providers and adjusters to act in bad faith.
How Do Insurance Companies Act in Bad Faith?
Recognizing the signs of insurance bad faith helps safeguard a person’s rights as an insured customer. Every policyholder is entitled to the support of the insurance company in the event of a covered loss. The following are the most common examples of bad faith insurance acts:
Fast Claim Denial with No Justifiable Reason
Some insurance companies acting in bad faith may quickly deny coverage for no obvious reason. These companies often expect the policyholder to accept the denial and abandon the claim.
Anyone who has been wrongly denied coverage has the right to contest the decision. While insurers have a right to deny a claim, they must offer policyholders valid reasons for the denial and how they arrived at their decision.
Lack of Communication
Insurers that limit or cut communication with their customers once they file claims may be attempting to avoid their fiduciary responsibility. Failure to acknowledge receipt of documentation from insured customers or failure to commence investigation may be a sign of insurance bad faith.
Insurance companies have a legal duty to communicate with their insured consumers frequently, effectively, and relatively easily. They should accept questions, provide appropriate answers, and exchange information for a prompt claim determination.
An insurer may be acting in bad faith if it employs delay tricks to slacken the processing of legitimate claims. Insurance companies use delay tactics, such as switching claims processors after negotiations have commenced, misrepresenting the statute of limitations, and making irrational demands for documentation and proof.
Insurance companies use delay tactics to frustrate the policyholder into accepting a lowball offer or dropping the claim altogether. Insured consumers in dire need of payment may give in to the insurer’s delay tactics and accept a low settlement offer.
Pressuring Policyholders to Accept an Unreasonable Settlement Offer
An insurance provider that pressures an insured customer to take an unreasonable settlement offer may be engaging in a bad faith insurance practice. The company may try to convince the insured that no other settlement offer is available. It may also try to persuade the insured that the policy doesn’t address the expenses he or she expected.
Canceling or Modifying a Policy without the Consent of the Policyholder
Canceling or changing a policy without notifying the insured in advance is a bad faith insurance act. Malicious insurance companies use this tactic to either lower the compensation an insured consumer is entitled to or deny coverage altogether.
The objective is to base the claim eligibility on the newly modified policy rather than the original policy terms. Keeping a copy of the original insurance policy can help prevent insurance companies from using this tactic.
Questioning the Insurer’s Position on a Claim in Writing
A policyholder who suspects that the insurer is acting in bad faith should question the insurer’s position on a claim in writing. The policyholder should write down his or her questions and require the insurer to provide written responses regarding the decisions of the claim.
Many insurance adjusters handle the policy language and explanation for their decision on a claim recklessly when talking to insured customers. They, however, tend to try their best to act professionally when it comes to putting their decision in writing.
Having the insurer’s decision in writing prevents the insurer from changing its position in the event of a bad faith insurance lawsuit. Insurance adjusters often change their position when under oath, especially if what they initially told the insured isn’t in writing.