Warning Signs of Bad Faith Insurance Practices
When searching for the right insurance policy, it may seem challenging to identify bad faith practices; if you believe your contract has been dishonored, it can be just as difficult to prove bad faith. Let’s discuss the signs of bad faith practices and how to fight them.
What Is Bad Faith?
The bad faith definition in the context of the insurance world refers to an insurance company’s efforts to:
- Avoid its obligations under an insurance policy
- Refuse to pay a policyholder’s legitimate claim
- Delay the investigative or administrative processes without reason
- Fail to act in a way that is deliberately designed to undermine the purposes of an insurance policy
Examples of Bad Faith Insurance Practices
Insurance companies can act in bad faith when they misrepresent an insurance policy’s language to the policyholder in order to avoid paying a claim. Other examples include failing to disclose policy limitations and exclusions to policyholders before the consumers purchase a policy or making unreasonable demands on them to prove a covered loss. Some claimants might see this as wrongfully ‘dragging out’ the claims process with no hope of any end in sight.
Some telltale signs of bad faith insurance practices include:
- Failing to conduct a prompt or complete investigation
- Deliberately misrepresenting a policy’s language
- Willfully misstating the applicable law
- Large gaps in communication
- Frequent switching out of representatives
- Refusing to take a necessary administrative step on a claim
- Refusing to provide documentation when reasonably requested
- Threatening or intimidating a policyholder
- Unreasonably delaying payment on claims
- Denying a legitimate insurance claim without giving a reason
- Placing corporate profits over a policyholder’s rights
- Offering compensation below the value of the claim
- Sudden and unpredictable changes to insurance policies
Proving Bad Faith & Fighting It
A difference in opinion between a policyholder and an insurance adjuster does not give rise to a bad faith insurance claim unless the adjuster refuses to provide reasonable support for their findings. Likewise, simply making a mistake or outright negligence does not constitute a bad faith claim. Instead, an insurance company must be ‘caught in the act’ of doing something deliberately in bad faith for the matter to become ready for bad faith insurance lawyers to help put together a case.
Many states have laws that specifically address bad faith practices, also known as unfair claims practices laws and consumer fraud laws. For example, the Texas Deceptive Trade Practices Act makes it illegal for a business to use deception or fraud to sell consumers worthless goods or services. Laws like these have been enacted by legislatures to protect consumers against malicious behaviors by companies. In the case of insurance companies, you may provide attorneys additional grounds to bring a lawsuit on your behalf where bad faith has occurred (beyond the traditional breach-of-contract lawsuit and limited related remedies that would ordinarily be available.)
Some of the laws mentioned above, if proven violated, require insurance companies acting in bad faith to pay basic damages to help compensate their victims. They must also pay damages above and beyond the amount owed under the claim. These are often called statutory or punitive damages and can elevate the value of a bad faith insurance claim far above the original loss. Damages may also be awarded for costs required to bring the bad faith lawsuit and attorneys’ fees.
How We Can Help
As professionals who help clients interpret contracts, understand their rights, and recover from their losses every day, the insurance claims attorneys at McClenny Moseley & Associates are well positioned to serve as watchers and advocates to prevent you from suffering from bad faith insurance practices. Our attorneys fully understand what is required of insurance carriers.
Contact us today for a free claim review if you believe your insurance company has dishonored your contract.