Your insurance policies are supposed to be your safety nets. When you purchase a policy, you agree to pay the insurer a regular premium in exchange for guaranteeing that they will help you if an accident or disaster happens.
The problem is that insurance companies are businesses like any other. That means they look for ways to maximize their profits. The highest cost for most insurers is paying out claims to their customers, so unscrupulous providers often try to avoid making these payments.
This is a violation of your contract and against the law. However, it still happens. When it does, the insurer is practicing “bad faith insurance,” and you have grounds to take legal action.
What Is Bad Faith in Insurance?
Bad faith insurance occurs when an insurance company tries to avoid living up to its contractual obligations. It includes behavior such as:
- Misrepresenting contractual language (lying) to avoid paying claims
- Failing to fully inform customers about policy restrictions and limits before they purchase policies.
- Making unreasonable demands for “proof” before paying claims
- Delaying investigations regarding a claim
- Failing to respond to clients after they have filed claims
There are many reasons an insurer may act in bad faith, but the most common is greed. If the company doesn’t pay its clients what they are owed under its policies and the customers don’t hold it accountable, it keeps the funds it should have paid and makes a greater profit.
Another potential reason for acting like this is laziness. An individual insurance agent may knowingly ignore claims, delay investigations, and otherwise avoid promptly and effectively handling their responsibilities if they consider it too much work. Insurers are supposed to monitor their agents to ensure this does not happen, but negligent companies may allow it to occur anyway.
It is important to note that simple mistakes are not usually grounds for legal action. A company can act in good faith and still make errors; the surrounding circumstances matter when determining whether an issue is a matter of bad faith. An action must be purposeful or actively negligent to meet the definition of the term.
If the company acknowledges the mistake when it is discovered and takes steps to fix it, it has performed its due diligence and acted in good faith. However, insurers that deny mistakes, refuse to correct them, or make frequent or significant errors without attempting to rectify the issues are not acting in good faith.
Five Common Signs of Bad Faith Insurance
Policyholders need to be on the lookout for negligent or malicious insurance practices. Once you have spotted potential bad faith actions, you can consult an experienced insurance attorney to decide what to do next. However, you need to spot the problem first. The five most common signs are:
Unfair Claim Denials
If you have a solid understanding of your insurance policy, you may notice when your claims are unfairly denied. An unfair denial is a claim that’s denied when by all rights, it should be covered under your policy. For example, if you have a car insurance policy that covers accidents with uninsured motorists and your insurance company outright denies your claim for an accident caused by an uninsured driver, it may be an unfair denial.
Similarly, insurers may try to underpay your claim to save money. This could look like your car insurance offering you a few thousand dollars for an accident that left you with tens of thousands in medical bills. It could also look like your health insurance only offering to pay half of your prescription costs when the policy states it should provide 90% coverage.
Insurers have the right to request you provide proof of a loss before they pay your claim. However, they cannot make unreasonable demands regarding the evidence you provide. What is considered unreasonable depends on the circumstances.
For example, suppose you are filing a claim regarding an accident that required back surgery. In that case, your insurer could reasonably request medical records regarding the surgery and any other recent back problems you may have had. However, requesting your entire medical history, or requesting you get multiple second opinions before agreeing to cover the surgery, might be considered unreasonable.
Lack of Communication
California law requires insurers to submit fair, prompt, and equitable settlements. This includes communicating with clients and investigating claims in a timely fashion. Under state regulations, insurers must:
- Accept or deny claims within 40 days of their filing unless additional information is needed to make a determination.
- Request additional information regarding the claim within 30 days of filing, if necessary, and every 30 days after that until it is settled.
- Perform investigations necessary to make a determination promptly to meet the above deadlines.
If they do not do these things, or if you generally have trouble contacting or getting responses from your insurer, they may be acting against your best interests.
Once an insurer has accepted a claim, the company is supposed to pay you as soon as possible. It can delay no more than 30 days from the acceptance date. The only exception is policies like certain forms of disability insurance, which specifically include a delay period between accepted claims and the payment of claims.
Standing Up Against Bad Faith During Insurance Claims
If you believe you are facing bad faith actions from your insurer, you need professional legal help. At The Ellis Firm, APLC, we have the resources and expertise to stand up to unscrupulous insurance companies around California. Learn more about how our Temecula, California, bad faith insurance attorneys can help you pursue fair compensation for your personal injury claim today by scheduling your consultation.