Insurance companies are legally obligated to act in “good faith” by investigating, negotiating, and settling claims filed by policyholders within a certain time. If your insurance provider doesn’t uphold its end of the contract and wrongfully denies, delays, or reduces a valid claim, the insurer may be acting in “bad faith” and can be held legally liable for its actions.
Bad faith is broadly defined as dishonest and unfair practices. The presence of any one of those acts means you may have a cause of action against your insurance provider.
The following are the most common examples of insurance bad faith:
- Unreasonable delays – A policyholder can suffer serious financial distress when there is a delay in settlement. Insurance companies need to settle valid claims without any unreasonable delay. Attempting to use a delay to gain leverage in settlement negotiations constitutes bad faith.
- Deny a valid claim – If an insurance provider fails to provide a good reason for denying your claim, or if it gives an invalid reason for denial, it may have acted in bad faith.
- Failure to conduct a complete investigation – In every policy, insurance companies are required to perform prompt and thorough investigations into a policyholder’s claim.
- Offer less than the value of the claim – Insurance providers will typically lowball the initial settlement offer. If they refuse to budge from that low offer or continue to offer significantly less than your claim is worth, it is considered bad faith.
- Misrepresent the law of policy language – Insurance companies need to be honest in their statements about your policy and the law. Additionally, insurance companies owe policyholders a fair evaluation of the facts of the case. If your insurer intentionally interprets policy language or the facts of the case against you, it may have acted in bad faith.
- Engage in deceptive practices – This could mean the insurer fails to notify you of a claim filing deadline and fails to provide the necessary papers to complete your claim in a timely manner. Furthermore, the insurance company could fail to disclose the existence of covers to avoid paying you.