Insurance Company Bad Faith Tactics and Examples
Being injured or suffering property damage is difficult enough. It’s even worse when your insurance company doesn’t live up to their end of the contract. Your insurance company is required to investigate, negotiate, and settle claims in good faith. When this duty is violated, the insurance company can be liable in court for their bad faith actions.
Bad faith is broadly defined as dishonest or unfair practices. Review these insurance company bad faith tactics and examples to help identify if your insurance company is acting in bad faith.
Common Bad Faith Tactics
States often define the types of actions that represent bad faith practice by insurance companies. The presence of any one of those acts means you may have a cause of action against your insurance company. However, these acts alone are not sufficient to prove a bad faith claim.
A common law claim requires proof that the insurer's conduct was unreasonable and that the insurer knew or recklessly disregarded the fact that its conduct was unreasonable. A statutory claim may have a lower standard of proof, only requiring proof that that a benefit to which the insured was entitled under the policy was unreasonably delayed or denied.
An insurance company may drag out the time it takes to investigate a claim before agreeing to pay. This tactic is done to see if the policyholder will just give up pursuing the claim. Most state’s set deadlines for an insurance company to accept or deny a claim, ranging from 15 to 60 days.
EXAMPLE: A home suffers water damage from a broken pipe. After the policyholder submits a claim, the insurance company does not start investigating the claim for more than two months.
Failure to Conduct a Complete Investigation
Every insurance policy contains an implied duty of good faith and fair dealing. This requires an insurance company to conduct prompt and thorough investigations in to a policyholder’s claim.
EXAMPLE: A claim is submitted for a car that sustained damaged while parked on the street. The claims adjuster spoke with the policyholder over the phone and denied the claim, determining it was pre-existing damage. The adjuster did not consider the repair shop estimates or inspect that damage in person.
An insurer could fail to disclose the existence of coverage so they don’t have to pay you. Your insurance company fails to notify you of a claim filing deadline and doesn’t provide the papers necessary for you to complete your claim on time.
EXAMPLE: Perhaps your small business insurance provides for lost income after a covered event. After experiencing a theft of important work equipment that kept you from completing an important job, you are not informed that you could file a claim for lost income in addition to the claim for the equipment.
Offering Less Money Than a Claim Is Worth
Insurance companies can’t avoid paying a valid claim to bolster their own profits. Tactics such lowballing or offering less money than a claim is worth is an act of bad faith.
EXAMPLE: A tree fell onto the roof of your house. The insurance company is offering to pay about half of the amount of the repair quotes you have received, despite higher coverage called for under the policy.
Misrepresenting the Law or Policy Language
Insurance companies may deliberately interpret policy language against the claimant. A part of the duty of good faith and fair dealing, insurance companies must be truthful in their statements about your policy and the law.
EXAMPLE: An insurance company states that you could be found guilty of insurance fraud if you put in an auto insurance claim when you think you may have been partially at fault for the accident.
Refuse to Pay a Valid Claim
Insurance companies are required by state law to only use fair claims practices. If the insurer denies a claim that should be covered by the policy, this action could qualify as bad faith.
EXAMPLE: Your car was hit by an uninsured motorist who admitted fault for the accident in the police report. You have insurance that covers this circumstance. After submitting your claim, your insurance company refuses to pay for the damage.
Making Threatening Statements
An insurance company should never make a threatening statement to policyholders or third parties who are making claims. If an insurance company makes a threat, call your state insurance board and/or an attorney right away.
EXAMPLE: The insurance company threatens to take harsh legal action against you or file criminal charges if you submit a claim.
Experiencing Bad Faith Tactics? Consult with an Attorney
It’s important to understand that the insurance adjusters who is making decisions about your claim does so in the interest of the insurance company. Unfortunately, some insurance carriers take unreasonable measures to avoid paying rightful claims owed to policyholders. Working with an experienced attorney ensure you have an advocate on your side. Consult with a bad faith insurance lawyer to determine if your claim has been affected by bad faith tactics.