If you think your insurance company is on your side, it can be a rude awakening to find out the opposite. Though not all insurers are necessarily malicious, make no mistake that they are all driven by profit, not customer satisfaction. One of the serious issues that can arise due to this drive is bad faith insurance.
What are considered bad faith insurance practices? Any refusal, denial, underpayment, or delay of a legitimate claim by a policyholder. If insurance companies don’t have a valid reason to do so, it could be deemed bad faith.
For example, bad faith takes place whenever an insurance company:
- Violates or misrepresents their contract language in order to avoid pay a policyholder’s claim.
- Fails to fully disclose the policy limitations and exclusions prior to purchase.
- Makes extreme or unreasonable demands in regards to proving a loss is covered.
- Only looks for evidence to deny a claim and not acknowledging evidence that supports it.
- Cites or quotes laws improperly so that they can deny your claim.
- Refuses to negotiate a fair settlement with you despite their obvious liability.
- Fails to perform a proper investigation of claim in a reasonable timeframe.
Sadly, these practices have become all too common, with many insurance companies taking advantage of the fact that policyholders don’t always understand their rights or legal options when they are mistreated.
How Bad Faith Insurance Laws Curb These Practices
The good news is that there are laws in place to help prevent bad faith insurance practices from occurring. When insurers do commit bad faith against a policyholder, these laws allow them to take legal action in response to such abuses and mistreatment. These laws were put in place to protect individuals from unethical practices.
You can file a complaint with your state insurance board if your insurer continues to refuse to provide a fair settlement. Once you’ve done this, an investigation will begin to determine if bad faith practices were really involved. However, taking further legal action is often necessary to obtain the fair claim amount you deserve, as the board cannot force them to pay a claim in full, only levy fines against them. This means you may need to pursue a case on top of the complaint you filed against them.
When Is It Not Bad Faith?
Bad faith practices can cause serious harm and be devastating to a policyholder. It is important that you understand these practices so that you don’t suffer abuse from your insurer. However, not all frustrating actions by insurance companies will be considered bad faith practices.
For example, a disagreement or difference of opinion between an adjuster and policyholder on the total loss amount doesn’t necessarily equate to bad faith practices. On the other hand, if the adjustor failed to provide any proof or support of their deduction to your claim amount, then bad faith practices may have played a part. Keep in mind, a simple mistake or error on the part of your insurer doesn’t mean they can be charged with bad faith.