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What to Do if an Insurance Claim was Denied in Bad Faith

Every year, consumers pay into insurance policies under the assumption that they’ll receive a fair payout if they have to make a claim. But consumers often forget that insurance companies are still businesses – and businesses do all they can to protect their bottom lines.

To preserve revenue and profits, some insurance companies act in bad faith by denying claims or reducing insurance payouts.

What is a Bad Faith Claim Denial?

When you take out an insurance policy, you enter into an agreement with the insurance company. The insurer promises to act in “good faith and fair dealing,” and to meet this promise, the insurance company must uphold its policy provisions and the policyholder’s rights to receive benefits under the policy.

If an insurance company fails to meet these duties without a good cause, the company could be held liable for acting in bad faith.

Acts of bad faith can come in many forms, including:

Claim Delays

Insurance companies must process claims within a reasonable period of time and without unnecessary delays.

Delayed claim processing without a reasonable cause may be a sign that the insurer is either going to deny the claim in bad faith or attempt to underpay.

Policy Cancellations

When claims are made, some insurance companies will look for errors or misrepresentations that may void the policy. This is a particularly common tactic with life insurance companies who don’t want to pay out when a beneficiary files a claim for death benefits.

The insurer may attempt to cancel the policy for errors – even those as minor as an unsigned form or a misspelled name – regardless of whether the premium was paid in full.

Policy Misrepresentations

Some insurers may try to avoid claim payouts by misrepresenting policy requirements, terms and provisions. It is for this reason that insurance companies use complex terminology in their policies, and the language typically favors the insurance company.

Policy Lapses

Insurance companies may lapse a policy if the policyholder misses a few payments – even if the policy had been paid in full for decades.

Policy Exclusions

Every insurance policy has coverage exclusions. It’s not uncommon for insurers to use ambiguous exclusions in order to deny claims.

In some cases, a claim denial is valid because of a legitimate exclusion. But there are occasions when insurance companies twist the facts or the terms of the policy in order to deny a claim.

What to Do if Your Claim was Denied in Bad Faith

If you suspect that your insurance company has denied your claim in bad faith, you may want to consult with a lawyer who has experience in this field of law.

Also, it’s important to carefully document all of your interactions with the claims adjuster as well as representatives of the insurance company. If you do file a lawsuit against the insurance company, this documentation will help prove your case.

Legal experts suggest asking the claims adjuster for written documentation stating the reasons for the claim denial. If the claims adjuster refuses to comply, send the insurer a certified letter, return receipt requested. In the letter, inform the insurance company that you believe the claims adjuster has acted in bad faith.