Filing an insurance claim should be easy and straightforward, providing you, the policyholder, with the financial relief you need after property damage, an accident, or any other covered events.
Of course, knowing the difference between economic and non-economic damages is important for your claim process, but either way, some insurers may deny your claim unfairly without any valid justification, and this is known as acting in bad faith. Insurance companies are legally obligated to handle all claims in good faith, meaning that claims have to be processed fairly and investigated thoroughly, and reasonable settlements have to be offered when justified.
That said, not all insurers follow these standards, and it’s helpful to identify what bad faith insurance is and how you can challenge unfair insurance claim denials.
What Is a Bad Faith Insurance Claim?
According to the law, insurance companies have what is known as a duty of good faith and fair dealing, which requires them to handle all claims fairly and honestly. However, insurers sometimes refuse to pay legitimate claims without any kind of justification, resulting in an unreasonable denial of your claim.
Moreover, if an insurance company engages in any kind of deceptive practices, it is also considered bad faith. That being said, it is important to know the difference between bad faith practices and simple delays or mistakes.
There are minor administrative delays that can happen due to high insurance claim volumes, and these may qualify as bad faith. However, intentional acts committed with the aim of refusing your insurance claim are considered bad faith.
Common Signs of Bad Faith Insurance Practices
To know whether or not your insurer is acting unfairly, you’ll want to be able to recognize signs of bad faith, all of which are covered below.
- An insurer may be acting in bad faith if there are unreasonable delays in claim processing. You may notice that your insurer repeatedly delays processing your claim without any reasonable grounds.
- An insurer is acting in bad faith if they deny a valid claim without any kind of investigation.
- If an insurer offers you an unreasonably low settlement, much lower than what your policy is supposed to cover, then they are most certainly acting in bad faith.
- If your insurance claim is denied, but there is no clear reason provided as to why it was denied, then bad faith is likely a culprit.
- If your insurer gives you misleading or vague answers or stops responding to your questions altogether, they may be trying to avoid liability.
How to Prove Bad Faith Insurance Claims
Now that you know your insurance company may be acting in bad faith, you have to gather the evidence and properly understand the state and federal laws that will help you strengthen your case. First, it’s important to talk about gathering evidence.
- Gathering the Evidence
One of the most important things you can do is to gather evidence and as much documentation as you can. This means that you’ll want to keep records of all denial letters and claim correspondence, repair estimates, medical bills, witness statements, accident reports, and claim processing timelines. The more documentation evidence you have at your disposal, the likelier it is that your claim will go in your direction.
- State and Federal Laws Protecting Policyholders
Next, you’ll also want to familiarize yourself with the laws regulating bad-faith insurance practices in your state. For instance, there are two different types of bad faith, including first-party bad faith and third-party bad faith.
- Expert Testimony and Legal Assistance
Then, you must also secure some expert testimony from industry specialists and insurance law attorneys. These are experts in their given fields and can help you prove bad faith. For instance, an expert can help you analyze claim-handling procedures, industry standards, and policy language in order to demonstrate that an insurer failed to act in a fair manner.
Steps to Take If Your Insurer Is Acting in Bad Faith
If your insurer is acting in bad faith, there are three specific steps that you’ll want to follow, as outlined below.
- Clearly communicate with your insurance company: Formally request a written explanation for the denial before you escalate the complaint. If you get a vague response, send a demand letter that outlines the summary of your claim, the evidence you have, a request for the claim to be reevaluated, and your own deadline for the insurer’s response.
- File a complaint if bad faith continues: To file a complaint, simply go to the insurance department website for the state you reside in, provide the details about the bad faith actions of your insurer, and submit all copies of documentation you have. That being said, although regulators can pressure and ensure to settle fairly, they are unable to force an insurer to pay.
- Hire an insurance dispute lawyer: These are lawyers that specialize in bad faith claims, and they’ll be able to help negotiate a fair settlement with the insurer, file the lawsuit for breach of contract or bad faith, and likely represent you on a contingency basis.
Legal Remedies for Bad Faith Insurance Claims
If regular negotiations fail, you can always take legal action against your insurer for a bad faith tort claim or a breach of contract. Although litigation can take months or years, you may receive full policy benefits, punitive damages, and compensation for your attorney’s fees and legal costs.
However, if there are multiple policyholders that experience bad faith practices from the same insurance company, there may be an option to file a class action lawsuit. Class action lawsuits generally result in large settlements as there are many affected claimants.
Fight for your rights against insurance
Although insurance companies technically have a legal obligation to act in good faith, this is not always how they behave. Insurance companies are all about minimizing and delaying payouts. If you suspect that bad faith is afoot, keep documents of everything, demand an explanation, and file a complaint with your state. If the insurer continues acting unfairly, you should hire a bad faith insurance attorney as soon as possible and file a lawsuit.
