What is a Bad Faith Insurance Claim?
When you purchase any item, there’s a certain amount of good faith involved in the transaction. You expect that what you find in the box is what you're expecting to find. You believe the item will be in new condition. You have faith the item will work properly when you take it from the box.
Purchasing insurance is no different. It doesn’t matter if you’re buying vehicle, life, health or home owner’s insurance, you’re acting in the good faith that when the time comes for you to file a claim, your insurance company will pay the claim in a timely manner. Bad faith is when an insurance company refuses to pay a claim or takes too long to pay without an adequate reason.
What is bad faith insurance?
Bad faith insurance is a wrongful denial of benefits by an insurer to a policy holder. The contract you sign with an insurance carrier mandates that the insurer act in good faith toward you. Insurance companies routinely delay making payments for any number of reasons. Even when they approve a claim, they will frequently try to underpay the claim. It’s up to a court of law to decide whether the carrier’s actions are reasonable or not.
The burden of proof only requires you to show that your insurance carrier refused to honor the terms of the contract and was wrong to do so. The insurance provider is required by law to hold your financial well-being in the same regard as its own finances. Any other injuries that the insured may suffer as a result of bad faith insurance are also included in a judgment against the insurance carrier. If your insurance company is found to be acting in a manner that is beyond unreasonable, the court could impose a judgment exceeding the original claim to penalize the carrier and dissuade such activity in the future. You can find out more about the history and background of bad faith insurance.
What constitutes bad faith?
Bad faith is seen in many disguises. Sometimes it’s easy to spot. Sometimes it’s difficult to identify. Here are some examples of bad faith.
• Slow-walking the payout
• Refusing to investigate a claim
• Altering the meaning of the language of the policy
• Refusing to pay the full claim
• Altering the policy itself
• Requiring excessive or duplicate paperwork
• Harassing the insured about the claim
• Focusing on recovering their payout before settling the case
• Canceling a policy after a claim has been made
• Not acting in the best interests of the insured
• Treating the insured’s attorneys as legal adversaries
• Avoiding contact with the insured
Can my insurance carrier deny my claim?
Your carrier can deny your claim if you haven’t upheld your side of the contract, if a claim is not covered by the policy or if the claim is fraudulent. For example, if you buy insurance for a package but don’t follow packing requirements, an insurance claim will be denied. Your claim will also be denied if you try to file for collision coverage when you only carry liability insurance. If you make a claim that is without merit, it will also be denied.
What is the best way to file a claim?
If you need to file a claim, do so immediately. Contact your carrier and go over the policy to make certain you’re covered. Keep notes every time you speak to your agent. Record the date, time and name of the person to whom you speak regarding the claim. File your claim promptly. Most policies require the filing within a limited time period. If you don’t file it within the time frame specified on your policy, you may be denied benefits.
What should I do if my insurance carrier seems to be acting in bad faith?
If your claim is denied without adequate reason, you need to contact your carrier’s Director of Claims and present your case. Send a letter via registered mail outlining why you feel the claim is reasonable. Gather all your written correspondence and any notes you took during telephone calls. While you’re at it, contact your state’s Department of Insurance Commissioner and ask for a review or some assistance.
What should I do if my insurance company commits bad faith?
At this point, you need to set up a meeting with a good insurance attorney. Bring all your paperwork and your policy with you. After checking your policy and speaking with you, a qualified insurance attorney will be able to tell you if your insurance claim should have been covered. If you don’t know an insurance attorney, you can call an attorney referral service to find one.
What are my options once I’ve talked to an attorney?
You can tell your carrier that you sought the advice of an attorney and you’re prepared to sue if they don’t pay. Then try to negotiate the best settlement you can get. Usually an insurance company will pay more attention to you when they know you’ve contacted an insurance attorney. You might get a settlement without going to court. On the other hand, your carrier might become uncooperative if you announce that you’re going to sue them. If you’re unable to strike a deal or unwilling to accept an offer, you have to decide whether to abandon the claim or have your attorney file suit.
If I sue my carrier, what will I be able to recover?
If you win the suit, you may recover the original claim plus all other damages and losses incurred due to the bogus refusal to pay the claim. You’re also likely to be awarded your attorney’s fees and some compensation for any emotional distress you suffered.
Why would my insurance carrier commit bad faith?
Insurance companies make a lot of money by denying claims. Most people won’t follow through on a lawsuit against an insurance company. Therefore some companies make a practice of fighting any claim that isn’t obviously covered.
