Bad Faith Insurance Practices
Bad faith insurance practices occur when an insurance company unreasonably delays or denies a valid claim or coverage. This violates the implied covenant of good faith and fair dealing that exists in all insurance agreements in the United States. Insurance companies have a duty to investigate claims promptly, evaluate them fairly, and provide a clear explanation if they deny a claim. Failing to do so constitutes bad faith and can open insurance providers up to legal action.
What Constitutes Bad Faith?
There are several bad faith tactics insurance companies may use to avoid paying out on legitimate claims:
- Denying a claim without conducting a reasonable investigation
- Unreasonably delaying the claims review process
- Not communicating openly and honestly with the insured
- Misrepresenting facts or policy provisions
- Disregarding evidence that supports the insured’s claim
- Denying coverage based on minor technicalities or errors
- Low-balling claim value and forcing the insured to take legal action
- Putting company profits above the insured’s right to coverage
Bad Faith Claim Examples
Some examples of bad faith practices by insurance companies include:
- Denying a claim because the insured was 5 minutes late reporting the accident
- Delaying approval of a necessary medical treatment recommended by the insured’s doctor
- Refusing to pay for a procedure covered under the health care policy
- Altering records to make the insured appear at fault
- Ignoring evidence that proves the insured’s disability prevents them from working
- Denying a claim asserting a preexisting condition without medical review
These tactics allow insurance companies to avoid paying out on policies. Even when claims are legitimate, providers use bad faith to protect their financial interests over the insured’s right to coverage.
Seeking Legal Action Against Bad Faith Practices
Insurance companies have a legal duty to handle claims fairly and in good faith. If they act in bad faith, policyholders may take legal action to recoup damages. Insurance companies may be liable for:
- The amount of coverage or benefits wrongfully withheld
- Emotional distress and mental anguish
- Legal costs and attorney fees
- Punitive damages to punish the insurer’s egregious actions
Policyholders can work with experienced personal injury lawyers or bad faith insurance attorneys to build their case. Strong evidence of unreasonable claim delays, unfair denials, and other bad faith tactics can help win compensation.
Reducing Your Bad Faith Risks
While you can take legal action if you experience bad faith, there are some steps you can take to choose an ethical insurer and reduce potential issues:
- Research companies’ reputations and complaint records
- Select insurers with strong financial ratings
- Understand your policy thoroughly, especially Reasonable and Customary cost provisions
- Document all communications with your insurer
- Consult your state insurance commissioner if you suspect bad faith behavior
- Work with an experienced insurance agent who will advocate on your behalf
- Promptly report any incidents that may result in a claim
While not every denial of coverage qualifies as bad faith, understanding your rights can help you seek fair compensation when insurers breach their duty of good faith. With diligence selecting providers, and assistance from legal counsel, you can best protect yourself from improper claim conduct.