Bad Faith Disability Claim Denial Lawsuits

The purpose of insurance is to protect you when you need it most. Disability insurance benefits can give you financial security if you are unable to work due to a disability. 

But to get benefits, the insurance company would need to approve your claim first. Insurance companies have a financial incentive to deny claims when possible to avoid paying out benefits. Yet, insurance companies must act in good faith under the law.

Good faith requires insurers to:

• Properly investigate claims
• Pay disability insurance claims when warranted
• Avoid unnecessarily delaying the process

Read on to learn the basics about bad faith practices. If they seem similar to what you’ve experienced, contact a disability insurance claim denial lawyer. You may take legal action against the insurance company for wrongfully denying your disability benefits.

Elements of a Bad Faith Insurance Claim Denial

In general, the bad faith disability claims process involves one of the following scenarios:

• The liability insurance company refuses to pay or underpays a claim without a reasonable basis
• Even if the company has a reasonable basis for denial, it fails to properly investigate the claim on time

The insurance company must have acted unreasonably or without proper cause in withholding the benefits warranted under the policy. Reasonableness is generally an objective standard. An insurer’s erroneous failure to pay benefits under a policy doesn’t necessarily rise to the level of bad faith. Missed calls or lost paperwork don’t meet the required element of unreasonableness.

Elements Vary Under State Law

Across the country, the elements of bad faith insurance practices may differ greatly. They can be more or less restrictive, depending on the state.

For example, in some states, to prove an insurance bad faith claim, a policyholder must show two elements:

• The insurer’s conduct was unreasonable
• The insurer either had knowledge of or reckless disregard for the fact that its conduct was unreasonable

By contrast, to prove an insurance bad faith claim in California, the insured must prove these elements:

• Benefits due under the policy were withheld
• The reason for withholding benefits was unreasonable or without proper cause

Genuine Disability Insurance Disputes

An insurer might deny or delay the payment of benefits due to the existence of a genuine dispute with the insured. These disputes might focus on the existence of coverage or the amount of the insured’s coverage. This scenario is generally not considered to be in bad faith.

But, in general, an insurance company acts unreasonably if it ignores evidence that supports the existence of or the amount of coverage owed to the insured for the subject claim.

Bad Faith Statutory Law

Many states have statutes addressing bad-faith disability denials. Colorado law, for example, provides that insurance companies must not unreasonably delay or deny payment of a claim for benefits owed. In other states, the statutes of consumer protection and unfair insurance practices may be used to file claims based on bad faith.

Types of Potential Bad Faith Conduct

Many types of conduct on the part of an insurance company may rise to the level of bad faith, including:

• Deceptive practices or deliberate misrepresentations to avoid paying claims
• Deliberate misinterpretation of records or policy language to avoid coverage
• Unreasonable conduct in litigation
• Use of an improper standard in denying a claim
• Arbitrary or unreasonable demands for proof of loss
• Abusive and coercive tactics to settle a claim or buyout
• Adjusters failing to investigate a claim per the company’s procedures or in a timely manner
• Failing to maintain adequate investigative procedures

Disability Claim Denial Appeals and Lawsuits

Claim denials are a common issue that can start a bad faith insurance case. Whether the denial is in good or bad faith depends on the disability insurance company’s rationale and actions.

After the denial of a claim, the first step is to use the insurance provider’s appeals process. This process can vary depending on the type of insurance you have. For example, a disability insurance policy through your employer is subject to ERISA laws. These laws require the insurer to send you a notice about its reason for denying your policy benefits. The appeals process might rectify any misunderstandings or documentation issues.

But if the insurance company’s conduct is unreasonable, the next step is to consider using the legal process. A disability attorney can assess whether filing a lawsuit may help you get the benefits you deserve. If you are entitled to disability benefits, the court can order the insurance company to approve your claim.

Damages of Bad Faith Claims Under Injury Law

An insurance company that acted in bad faith may be liable for damages far exceeding the policy limits. The types of damages you may seek in a bad faith claim differ from state to state.

A personal injury attorney can help you seek:

• Liability for judgments in excess of the policy limits: If your own insurance company acts in bad faith, it may be liable for amounts exceeding the policy limits. Imagine you become disabled after an auto accident. The damages exceed your disability and auto insurance coverage. The insurer might be responsible for the extra costs if it acted in bad faith.
• Contract damages: These are damages resulting from a breach of contract. Imagine your insurer refuses to pay a valid claim (say, property damage from a car accident) for which you’ve been paying premiums. This could constitute contract damages.
• Emotional distress: This is mental anguish caused by the insurer’s bad faith actions. If a lowball settlement offer leads to anxiety and stress, these could be considered emotional distress damages.
• Economic loss: This involves financial losses incurred because of the insurer’s bad faith actions. For instance, your health insurance company unjustifiably denies a valid claim. This leads you to pay hefty medical bills. You can seek compensation for this economic loss.
• Punitive damages: These are damages awarded by a court to punish the insurer for its bad faith behavior. For example, imagine an insurer intentionally misleads an uninsured motorist about their insurance coverage. This results in severe financial strain. In this case, a court might award punitive damages.
• Statutory penalties: These are penalties enforced by statute when an insurer behaves in bad faith. Imagine an auto insurance company failing to make a timely payment after a car accident. It might face statutory penalties under that state’s insurance laws.
• Statutory interest: This is interest that accrues on unpaid damages. Imagine, for example, an insurer making a lowball settlement offer after a car accident. This delays the payment. Statutory interest may accumulate on the unpaid part in this case.
• Attorney’s fees: If you sue your insurer for bad faith and win, you may be able to recoup your legal costs. These can include your disability attorney’s fees. Attorney’s fees can become expensive, especially in complex insurance cases involving issues like uninsured motorists or extensive property damage.

Get Help From an Insurance Lawyer For Your Disability Claim

Insurance companies put their policies in fine print for a reason. Insurance contracts are extremely complex and well-written, often by insurance attorneys. Knowing whether your insurance carrier is acting in good faith is difficult.

A disability insurance law attorney can help claimants understand bad faith in the context of disability insurance. They can help you with the requirements necessary to prove your legitimate claim.

Many personal injury lawyers offer free case evaluations. This way, you won’t have to worry about paying up front for legal advice from an experienced attorney. Get an initial consultation to discuss your options.