What Is Insurance Bad Faith?

You rely on insurance to financially protect you if you’re hurt in an accident. Your health insurance is supposed to help pay for the medical care listed in your contract, and car insurance and property insurance are intended to cover accidents in specific circumstances. But what happens if insurance companies don’t live up to their obligations? If an insurer refuses to pay a covered claim, you could be stuck with major bills and no way to pay them. 

You’re not out of options, though. When insurers try to renege on their contractual obligations to their clients, they commit a breach of contract known as insurance bad faith. If you believe an insurance company is trying to avoid paying you for a covered claim, you may have grounds to take legal action. Here’s what you need to know about this practice and what you can do to fight back. 

What Insurance Bad Faith Mean?

The term “bad faith” refers to intentional fraud or dishonesty in a transaction. While the term is used in law in many ways, it has a specific meaning when applied to insurance companies. If an insurer commits “insurance bad faith,” they attempt to avoid fulfilling their contractual obligations to their clients. 

In a perfect world, no company would ever act in bad faith. However, in the real world, insurers have a strong financial incentive to renege on their contracts. The insurance business model is based on collecting as many dues and paying as few claims as possible. Unscrupulous insurers may attempt to avoid paying covered claims to maximize their profits at the expense of their clients. 

When a customer signs a contract with an insurer, both parties agree to fulfill specific responsibilities. The client promises to pay dues on time and in full and report incidents to their insurer promptly. In exchange, the insurer promises to investigate all claims thoroughly and pay covered claims in full without unnecessary delays. Any time an insurance agent or agency attempts to violate that agreement, they act in breach of contract.

Examples of Bad Faith Insurance

Bad faith is a purposefully broad term. It covers a variety of purposeful contractual violations, many of which aren’t obvious. Examples of common bad faith actions by insurers include:

Denying Claims Without Stating Reasons

If an insurer denies your claim for any reason, they need to provide you with a thorough written explanation of why it was not covered. This ensures you understand what your policy covers and the elements of the incident that caused it to fall outside that coverage. 

Failing to provide this written explanation is considered breach of contract because insurance agencies may otherwise attempt to unjustly deny your claim. It is sometimes a sign that the insurer may not have a reason to deny your claim and is trying to do so anyway.

Failing to Investigate Claims Properly

Insurers need to investigate your claim before denying or underpaying it. This investigation is necessary to gather critical details about the situation and verify whether anything may cause it to fall outside your coverage. If they do not do so or use deceptive tactics to draw false conclusions from that investigation, they are committing breach of contract. 

Neglecting to Communicate

Insurers are required to communicate with you about important details of your policy and any claims you make. They need to send these details to you promptly so you have the information you need to make informed decisions about further claims or appeals, and failing to do so is considered breach of contract. Furthermore, your insurer cannot ignore your inquiries, refuse to communicate with you or fail to inform you about investigations or conclusions about your claim.

Purposefully Attempts to Underpay Claims

Denials aren’t the only way insurers may attempt to save money at your expense. In some cases, they may offer unreasonably low settlements for a claim to avoid paying it in full. Undervaluing claims like this prevents you from receiving the full value of what you’re owed and is considered breach of contract.

Delaying Claims Without Justification

Similarly, insurers may try to save money by dragging out a claim until you stop pursuing it. For that reason, delaying payment for your claim beyond a reasonable time frame without a good cause is also considered bad faith.

Fighting Back Against Unscrupulous Insurers

Since bad faith is a breach of contract, anything that falls under the umbrella of insurance bad faith may give you grounds to take legal action. If you think your insurer is in breach of contract, here’s what to do:

  • Get copies of all related documents. Make sure you have a copy of your original policy, your most recent policy, and any changes. Gather other documents related to your policy, including riders, bills, and guarantees not included in your contract.
  • Collect all communications with your insurer regarding your claim. Keep a copy of all information you sent to the agency with your initial claim. Also, keep letters and emails between you and your insurer following that claim, including messages about denials, underpayments, or disputes.
  • Talk to an experienced insurance attorney. Once you’ve gathered the above information, it’s time to talk to an attorney. They will help you file a dispute with your insurer, negotiate your settlement, and pursue legal action if necessary. 

Pursue Fair Insurance Payments With the Law Offices of Gomez & Gomez

If you suspect your insurer is purposefully delaying or denying you payment for a covered claim, you should hold them accountable for their actions. You deserve to have your claims paid in full without unreasonable denials or poor communication. Take a stand against this bad faith behavior by working with the expert insurance attorneys at the Law Offices of Gomez & Gomez. Schedule your consultation today to learn how we can help you fight for the compensation you deserve.