Insurance: Bad Faith Claims FAQs Text Size:

• Can I appeal a claim denial?
• How do I prove bad faith?
• If the insurance company won't settle within policy limits and the case ultimately goes to trial resulting in an award "above"(in excess of) policy limits, is this bad faith?
• Is a claim that is less than I think I should get mean that it was made in bad faith?
• My insurance policy is very confusing to read. Who has the final say in its meaning?
• What if an insurance company doesn't honor the policy and pay a legitimate claim?
• What is insurance company good faith?
• What is the process for obtaining information that the insurance company has and what do I need to give them?
• What should an insurance company do if there's a claim of bad faith or there might be such a claim?

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Q: Can I appeal a claim denial?

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• A: Yes. You have every right to appeal a denied claim if you think it was in error. Be sure you have real reasons for the denial and follow the instructions located in your policy before filing a lawsuit. You will usually have a limited amount of time to do this so be prepared.

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Q: How do I prove bad faith?

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• A: If you think your insurance company acted in bad faith over a claim, you have to make a case by establishing:
  • Nothing in the policy said the claim could be denied for the reason they gave, and
  • The company acted recklessly and with disregard or your rights.

  Bad faith can also occur when the company fails to process a claim at all.

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Q: If the insurance company won't settle within policy limits and the case ultimately goes to trial resulting in an award "above"(in excess of) policy limits, is this bad faith?

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• A: Generally, insurance carriers have a duty of good faith and fair dealing when it comes to dealing with their insureds. However, the company doesn't automatically have to settle within the policy limits. But where there is a possibility that the claim will be "above" or more than the policy limits, the insurance company can't act unreasonably by not settling within the policy limits. If they fail to do so and you are hit with a verdict that exceeds the policy limits, the company might have to pay the difference between the verdict and the policy limits, and you might be able to file a law suit against the company for acting in bad faith in handling your claim.

  In addition, some states allow you to not only recover the costs of repairs and other damages, but additional money that is meant to punish the company that's at fault. These are punitive damages. This includes legal fees, court costs, other fees and expenses incurred during the trial or preparing for it.

  Seek the advice of an attorney who is familiar with the insurance law in your state.

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Q: Is a claim that is less than I think I should get mean that it was made in bad faith?

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• A: Intentionally submitting an offer that's far below a reasonable offer could be a case of bad faith. This is called "low-balling." The company has an obligation to work with their customers in a fair manner. Anything outside this could be considered in bad faith.

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Q: My insurance policy is very confusing to read. Who has the final say in its meaning?

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• A: Courts and other government departments understand that policies can be confusing to consumers. So when a lawsuit about the wording of a policy is filed, there is already a set of "rules of construction," or rules to follow for interpreting the document.

  If there is more than one way to understand the policy, the judge will usually rule that the insurance company has to pay the claim. If the question is about excluding coverage, the judge usually allows very little outside meaning to be applied to the information in question. In this case, the judge will most likely rule that the insurance company has to pay more rather than have the ability to exclude coverage.

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Q: What if an insurance company doesn't honor the policy and pay a legitimate claim?

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• A:

  An insurance policy is a contract between the insurance company and the policy holder, the person who bought the coverage. Both parties are required to follow the terms of the contract and must act in good faith. If a legitimate claim is submitted and the insurance company doesn't cover what it says it will, there might be a breach of contract. Insurance companies act mostly on their own behalf and often try to get out of paying. If you read your policy and feel your company isn't providing the coverage you think you're paying for, you need to take action.

  You can then file a law suit for the damages that should have been paid on the claims, and might be able to collect the additional expenses that arise out of suing the insurance company, such as court costs and attorneys fees. If you find yourself in this situation, contact the department of insurance (or similar agency) in your state.

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Q: What is insurance company good faith?

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• A: The law requires any insurance company to act on good faith and deal fairly with their customers. They can't make up reasons to deny a claim when it it specifically says it will provide coverage in your policy manual. Each claim must be looked at individually and fairly when deciding to pay for it.

  In many cases, the language in the policy is confusing or not very clear. Judges usually rule in favor of the insured person and make the insurance company pay the claim and, perhaps, related costs.

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Q: What is the process for obtaining information that the insurance company has and what do I need to give them?

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• A: Discovery is the process where the defendant (the insurance company in this case) and the prosecutor (the person bringing the lawsuit to court), learn about the claims, defenses, witnesses and other material facts that will be presented in court.

  Information requested by you (or person bringing the suit) includes:

  • The entire claim and underwriting file
  • The company's handbook or manual describing how claims should be handled

  The insurance company will request the following:

  • An full set of the questions they'll ask about the claims and damages you're seeking from them
  • They'll want to see the original policy and any amendments or attachments made to it, and
  • A court order (subpoena) for all records for medical treatment, vehicle repairs, financial loss and how they were determined and other documents related to the case

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Q: What should an insurance company do if there's a claim of bad faith or there might be such a claim?

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• A: The company needs to review the claim and the policy and ask for the intial and any subsequent files and reports so they can be sure have the most up-to-date information about your claim.

  The insurance company will have its employees and lawyers review the claim to ensure they were following the policy and the company's procedures correctly with all of the information they needed to fulfill their end of the contract.