Insurance bad faith occurs when an insurance company unreasonably refuses to honor its contractual obligations to policyholders.
Understanding Insurance Bad Faith Refusals: What You Need to Know
When you purchase insurance, whether it’s for your home, car, health, or life, you’re entering into a contract with the insurance company. This contract promises that the insurer will cover specific risks or losses in exchange for your premium payments. However, what happens when your insurance company refuses to pay a legitimate claim? Unfortunately, this isn’t uncommon, and when it happens, it might be a case of insurance bad faith.
What is Insurance Bad Faith?
Insurance bad faith occurs when an insurance company unreasonably refuses to honor its contractual obligations to policyholders. In other words, if your insurer denies, delays, or underpays your valid claim without a legitimate reason, they may be acting in bad faith. This can apply to all types of insurance, including auto, homeowners, health, and disability insurance.
Common Examples of Bad Faith Refusals
Insurance bad faith can manifest in various ways. Some of the most common examples include:
- Unreasonable Denial of Claims: If your insurance company denies a valid claim without proper justification or evidence, they may be acting in bad faith.
- Delaying Payment: Delaying payment for an extended period without a valid reason can also constitute bad faith, especially when this delay causes financial harm to the policyholder.
- Lowball Offers: Sometimes, insurers will offer to settle claims for significantly less than they are worth, hoping that the policyholder will accept the offer out of desperation or ignorance.
- Failing to Investigate Claims: Insurance companies are obligated to investigate claims thoroughly. A failure to do so, or performing a superficial investigation, can be a sign of bad faith.
- Misrepresentation of Policy Terms: Insurers may misrepresent the terms of your policy to avoid paying out claims. This can include misleading language or intentionally vague terms designed to confuse policyholders.
- Unjustified Cancellation of Policy: Canceling a policy after a claim has been made, particularly without a valid reason, can be another form of bad faith.
How to Recognize Bad Faith
Recognizing bad faith can be challenging, as insurance companies often have legal teams that carefully craft their responses. However, here are some red flags to watch out for:
- Inconsistent Communication: If your insurer suddenly stops responding or constantly changes their reasons for denying your claim, it could be a sign of bad faith.
- Inadequate Explanation: A refusal to provide a clear and detailed explanation for a claim denial is another warning sign.
- Pressure to Settle Quickly: If your insurer pressures you to accept a settlement quickly and warns of dire consequences if you don’t, it could be a tactic to avoid paying the full value of your claim.
What to Do If You Suspect Bad Faith
If you believe your insurance company is acting in bad faith, you don’t have to face it alone. Here are steps you can take:
- Document Everything: Keep thorough records of all communications with your insurer, including emails, letters, and phone calls. Document any delays, lowball offers, or inconsistent statements.
- Review Your Policy: Go over your insurance policy carefully to ensure that your claim falls within the coverage limits. This will help you understand your rights and obligations.
- File a Complaint: Most states have insurance regulatory agencies that oversee insurance companies. Filing a complaint with your state’s department of insurance can put pressure on your insurer to act in good faith.
- Seek Legal Counsel: If you’re dealing with a significant claim and your insurer is acting in bad faith, it’s advisable to consult an attorney who specializes in insurance law. A lawyer can help you navigate the process and may even take your case to court if necessary.
- Consider a Bad Faith Lawsuit: In some cases, you may be able to file a lawsuit against your insurer for bad faith. If successful, you may be entitled to compensation beyond your original claim, including damages for emotional distress and legal fees.
Conclusion: Protecting Yourself Against Insurance Bad Faith
Dealing with an insurance company can be frustrating, especially when you feel like you’re being treated unfairly. Understanding your rights as a policyholder and recognizing the signs of insurance bad faith are essential steps in protecting yourself. If you find yourself in a situation where your insurer is refusing to pay a legitimate claim, don’t hesitate to seek help. By standing up for your rights, you can ensure that you receive the compensation you’re entitled to under your policy.
At Bannister, Wyatt & Stalvey, LLC, our attorneys help. For more information on insurance bad faith and how to protect yourself, be sure to stay informed and consult with professionals who can guide you through the process. 864.298.0084
