< Library - Insurance                                                                  
Insurance Bad Faith

UNFAIR INSURANCE TACTICS WORSEN CONSUMERS’ FINANCIAL HARDSHIPS

      Insurance companies may choose to insure our cars, our homes, our health, our very lives and they will happily take our money for doing so. However, when the time comes for them to pay for that smashed car, damaged home, failing health, or shattered life, they will fight hard or resort to tricks to avoid paying. 

      The current economic turmoil has not lessened these unfair practices. On the contrary, insurance companies have resorted to a number of strategies to minimize or avoid claims in order to maximize profits.  It is no secret that the insurance industry has been hit hard by the economic crisis. It is only logical that they will attempt to recoup their losses.

      In the immortal words of one insurance regulator: “The bottom line is that insurance companies make money when they don’t pay claims… They’ll do anything to avoid paying…” The American Association for Justice (AAJ) did a report in 2008 to describe some of the insurance industry’s dirtiest tricks to outmaneuver consumers:

      1) Denying Claims – Some of the nation’s biggest insurance companies have denied valid claims in order to boost profits. These companies have rewarded their employees who successfully denied claims, fired employees who would not, and have resorted to outright fraud – all to avoid paying claims. The denials may sound reasonable from the basic “it is not covered by your policy” to the more outrageous: the auto accident was not an accident because the other party intentionally wanted to hit you.

      2) Delaying Until Death – Many insurance companies routinely delay claims because they know that many policyholders will simply give up. The most shameful use of delay tactics has been by long-term care insurers who take advantage of their policyholders’ age and ill health. They know that if they delay long enough, the policyholders will die and they do not have to pay a dime.

      3) Confusing Consumers – Anyone who has ever tried to read an insurance contract probably gave up after five minutes. And no wonder. Insurance contracts are some of the most incomprehensible documents a regular person is ever likely to see. Even attorneys and the courts have trouble with them all the time. Despite the “plain English” laws enacted in half of all the states for all consumer contracts, many policyholders still do not fully understand what is and what is not covered in their policies. Savvy policyholders may look for the “fine print.” Alas, the problem maybe in the bold print, which is unfortunately written in an ancient Martian language.

      4) Discriminating by Credit Score – More and more insurance companies are using credit reports to dictate whether insurance should be given and if so, what premiums should be charged. This practice prejudices the poor, senior citizens with little credit, and persons who have suffered financial setbacks not of their own fault. Insurance companies have denied insurance coverage to financially responsible people who paid bills in cash but lack a credit history. Others who have fallen on economic troubles saw their auto rate skyrocket to nearly 600% despite a clean driving record.

      5) Abandoning the Sick – Insurers who want to cut costs have resorted to canceling policies retroactively (called “rescission”) when the insured have illnesses or conditions that become expensive to treat. Rescission targets the most vulnerable policyholders - cancer patients who needed surgeries and chemotherapies to fight their cancers, persons involved in catastrophic accidents and required expensive procedures to get well, chronically ill patients, and pregnant women. Some insurance companies have even offered bonuses to employees who meet “cancellation goals.”

      6) Canceling Policies – Many people are justifiably reluctant to make small claims on their home insurance for fear their insurance company will raise their premiums. But few realize that insurance companies often refuse to renew a policy because the policyholder made one phone call to inquire about the possibility of making a claim. Many times an insurance company will treat a telephone inquiry as an actual claim and it will become a black mark on the policyholder’s record. Just by making a single phone call, policyholders may have already sealed their fates and the insurers will drop their policy at the earliest opportunity. It makes no difference if the policyholder only called his or her insurance agent and not the insurer directly. The insurer will likely know about it and the policyholder will suffer the same fate of cancellation.

      Guidelines for the Policyholder

      Because insurance companies have been hit hard by the current economic crisis, they will obviously want to recover their losses. This means that the above-mentioned unfair practices will continue to be the norm rather than the exception.  

      How can policyholders assert their rights, fight against these dirty tricks and avoid being outmaneuvered? Over two decades of insurance litigation experience has taught us some guidelines that make a huge difference in successfully pursuing an insurance claim. These guidelines are nothing new and in fact, we have mentioned some of them in previous columns. However, their importance cannot be overemphasized:

      Read the Policy Carefully – Yes, it is hard but necessary. It is vital to an insured’s peace of mind to know exactly what is and what is not covered. In the case of health insurance contracts, it is important to know how to appeal a claim that has been denied.

      Fill Out The Forms Very Carefully – Sometimes a form is a just a form and mistakes do not much matter. However, insurance application forms must be handled with great care because mistakes or inaccuracies in the application may mean the difference between coverage and no coverage. Even if there was an honest mistake in the application, the insurer may seize on that as a reason to deny coverage or cancel the policy.

      Do Not Cash A Premium Refund Check – If the insurer cancels a policy, it may send a refund of the premiums. If the policyholder cashes the check, this may be interpreted as an acceptance of the insurer’s decision. Unless the policyholder really accepted the insurer’s decision, it’s probably best to hold on to the check until after the policyholder has clearly determined his or her rights and has thoroughly examined his or her options.

      Put Everything In Writing – Pursuing an insurance claim is rarely a pleasant and painless experience. Things can become very adversVerdana and the policyholder will be unable to prove anything that an insurance representative told him or her over the telephone. It is prudent for the policyholder to keep records of every bill and correspondence with the insurer.

      Do Not Give Up – By employing tricks, insurers expect to wear down the policyholders and make them battle-weary so that they give up their rights in exchange for a superficial truce. Dealing with insurance companies is a battle of patience and perseverance. Do not lose the battle by giving up and giving in. However, in the midst of the fight, it is also important to keep one’s civility and professionalism.

      Ask For Help – The California Department of Insurance may be able to help. However, they cannot represent a policyholder privately. There are times when a policyholder need not take on the fight alone and must call for reinforcements. So if all else fails, the policyholder may have to consult an experienced insurance attorney to advise on the best course of action for the policyholder. 

© Law Offices C. Joe Sayas, Jr.