What's the difference between a denied claim and a bad faith denial?

Many valid disability claims are wrongly rejected. Insurance companies can be sued for unreasonable denial or delay.

An insurance policy is a contract. In exchange for paying monthly premiums, the insurer agrees to cover certain losses from whatever you are insured against - fire, flood, collision, long-term disability.

Some people find out the hard way that the specific event is not covered under their policy. Yet many legitimate claims that should be paid are flatly rejected or endlessly delayed for no valid reason. This is illegal. It's called "bad faith denial" or "insurance bad faith." Under Arizona law, insurers can be forced to pay the claim -- plus damages -- for engaging in such practices.

What is insurance bad faith?

Insurance companies cannot deny your claim on a whim or a hunch. They must provide a specific reason such as a policy exclusion or incomplete information. They must offer a process to amend, dispute or appeal your claim. And they must process claims in a reasonable time frame, rather than dragging it out for months and giving you "the run-around" when you ask about the hold-up.

A lawyer who handles insurance litigation can intervene if your claim filed in good faith has been stymied. If the insurer continues to unreasonably withhold your entitled benefits, you could have a possible lawsuit for insurance bad faith:

• Denying your claim without conducting a reasonable investigation
• Making no good faith attempt at a fair, prompt and equitable settlement
• Failing to provide a reasonable explanation of denial based on the policy language or applicable law
• Using deceit to force you into a "lowball" settlement

Compensation for a finding of bad faith

To encourage timely payment of valid claims, Arizona statute places a significant burden on insurers found to be acting in bad faith. Plaintiffs may be entitled to:

1. Payment/settlement of the original claim
2.  Reimbursement of attorney fees
3. Monetary damages for emotional distress (pain, humiliation and/or inconvenience)
4. Punitive damages when the conduct is deemed "aggravated, outrageous, malicious or fraudulent"

A claim denied because of bureaucratic bungling can be considered bad faith, but it would not trigger punitive damages. An award of punitive damages requires intentional conduct such as systematically denying certain claims, exploiting an obscure technicality, willfully ignoring valid evidence or stalling claimants with endless requests for "additional information".

Is there a reasonable basis for delay or denial? You and the insurance adjuster may disagree over the interpretation of your policy. But trust your instincts if you think the insurance company is violating the law. Most attorneys who handle insurance disputes offer a free initial consultation and take bad faith lawsuits on a contingency fee (no legal fees unless they win compensation).