When insurance companies issue a policy, they promise that they will take care of their policyholders when they suffer a serious loss to their home, their car, or their health. Life insurers promise that beneficiaries will be provided the benefits when they die. Disability insurers promise that payments will be made in the event of inability to work due to injury or illness.
Because of the special nature of insurance policies, insurance companies must abide by the covenant of good faith and fair dealing under the law. This means insurance companies are obliged to deal fairly and in good faith with their insured. They have a duty to protect the interests of their policyholders in the same manner that they would protect their own. They are obliged to conduct a prompt, fair and reasonable investigation with a view of providing consumers their benefits under the insurance contract.
Insurers who betray or renege on their promise to pay for covered losses may be violating their duty of dealing in good faith and can be held liable for insurance bad faith. Various claims settlement practices by insurers deemed unfair or unreasonable under the law include the following:
- Misleading policyholders about facts or insurance policy provisions;
- Failing to respond promptly to communications from policyholders;
- Failing to set reasonable standards for investigation and processing of claims;
- Failing to accept or deny claims within a reasonable time;
- Refusing to settle claims in good faith after liability has become reasonably clear;
- Forcing policyholders to sue in order to recover benefits by making settlement offers substantially lower than the amounts recovered in the lawsuits;
- Failing to explain the factual or legal reasons for denying claims;
- Advising the policyholder not to retain an attorney.
If the insurance company unfairly denies or delays a claim in “bad faith,” it not only has to pay the policy benefits, but also additional damages such as emotional distress and attorney's fees. In some case where there is malice, fraud or oppression as these terms are defined under the law, these companies can be held liable for punitive or exemplary damages.
In asserting their claims, consumers may be at a disadvantage against experienced adjusters or attorneys representing the insurance due to the technicalities of the process. Consumers may also have to spend significant amounts of money and resources pursuing the claim. Experts and consultants may have to be retained to investigate the claim. When necessary, a lawsuit may have to be filed.
Having a fully paid policy is one thing. Obtaining your full policy benefits is another. If you file an insurance claim and find that your insurance company is using unfair tactics, it is wise to level the playing field by consulting an experienced insurance attorney.