Insurers are required by law to handle claims in good faith, which means properly investigating them, negotiating reasonable payouts and settling them in a timely fashion. When insurance companies use dishonest or unfair tactics, they can be held to account in what is called a bad faith insurance action.
Unfortunately, insurers sometimes fail in their duty to act in good faith. If you experience bad faith by an insurance company, you should call a lawyer. But how do you know if a company's actions are in bad faith?
Here are seven examples of how bad faith can occur:
Refusal to pay a valid claim
Although insurance companies are required to use only fair claims practices, they sometimes fail to pay out claims that seem clearly in line with the policy. For example, you suffer an injury that your doctor says will take six months or more to heal. You have long-term disability insurance, but your claim is inexplicably denied.
Failure to conduct a complete investigation
One reason insurance claims are unfairly denied is that the company's investigation was incomplete or handled negligently. Companies are required by law to conduct a thorough investigation promptly.
Misrepresenting the law or policy language
If your legitimate claim was unfairly denied, your next step is to ask for an explanation. At this point, the insurance company might tell you that your policy doesn't cover something that you believe it clearly does. Companies have been known to misrepresent their own policy language or deliberately misinterpret it in their own favor. They may also fail to mention laws that act in your favor.
Deceptive practices
Failing to mention a crucial state law affecting your claim could be deceptive. Other examples include failure to notify you of a deadline, not providing the appropriate paperwork, or concealing the existence of coverage you may be unaware of.
Offering less money than a claim is worth
If they can't deny your claim outright, some insurers may try to lowball it instead. For example, you may have collected several estimates for needed repairs, only to be disconcerted that your insurer's offer is lower than any of them.
Unreasonable delays
If a company delays your payment long enough, it can cost you money. They may be working internally to push your payment into a different quarter or simply to keep earning interest on the money. Meanwhile, you may be forced to tie up your own money by paying out-of-pocket for things insurance should cover.
Making threatening statements
No insurance company employee should ever threaten a policyholder -- or anyone. This includes threats of taking harsh or retaliatory legal action against you.
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