Why Do Insurers Deny or Underpay Claims? Why do Insurance Companies Commit “Bad Faith”?
Insurance companies are in business to make a profit, which means they want to take in as much in premiums as they can and pay out as little in claims as they can. Nevertheless, insurance carriers are bound by the terms of their contract with the insured to pay covered claims and provide other promised benefits. When insurance companies make unreasonable decisions regarding claims or decisions that are motivated by their desire to make a profit instead of a desire to meet their contractual obligations, the insurer may be said to be acting in bad faith.
Engaging in bad faith insurance practices opens up the insurance company to significant liability. In a breach of contract claim, you can recover for the benefits due to you under the contract, along with any actual damages you suffered. In the case of an insurance claim denial, contract damages could include having the insurance company cover your treatment or reimburse you for your medical costs and incidental expenses. A bad faith claim, on the other hand, is based in tort law instead of contract law. In this case, you could also recover money damages for harm such as pain and suffering, additional medical expenses you incurred from delayed treatment, emotional distress, and more.
Common Reasons for Insurance Denials – Good or Bad Faith
Every denial is not necessarily done in bad faith. Insurance companies have a duty to their shareholders to only pay valid claims, and it’s reasonable to expect them to investigate a claim to make sure it was filed properly and is covered by the policy. Some of the reasons a claim might get denied are listed below. Keep in mind that these reasons might be valid, or they might be in bad faith, depending on the motivation behind them. A skilled insurance lawyer can help in the difficult tasks of uncovering an improper motive and proving unreasonable conduct where it exists.
Lack of documentation – Insurance carriers are within their rights to ask for documentation that substantiates your claim, such as details about an accident or medical records. Sometimes, though, requests for documentation go on and on, month after month, seeking documents you don’t have. If these requests are merely a delaying tactic to get you to give up on your claim, that’s an example of insurance bad faith.
Inconsistent behavior – Insurance companies have been known to hire investigators to conduct surveillance on policyholders, particularly regarding a claim for disability insurance benefits. They’ll view your social media posts or even film you working around the house or taking trips to show you aren’t as hurt as you claim to be. Pictures and videos and social media posts are powerful evidence that can sway a jury, so it’s important not to overexert yourself or paint a picture to the public that does not reflect how you really feel. “Evidence” like this might not tell the whole story about how you are feeling, so it’s important to fight back and make sure the decision-maker (insurer, judge, jury) has the complete picture of your condition. If you overexerted and paid for it later, that should be documented as well.
Application problems – Insurers sometimes go back to the policyholder’s initial application to see if they omitted or misled the insurer regarding a pre-existing condition or health history related to the present claim. Sometimes they look for any error or inconsistency at all as a basis for rescinding the policy and avoiding paying the claim. However, any alleged error must be “material” to your claim; “materiality” is a legal question you will want to review with a lawyer. Also, if the insurer’s sole motive in reviewing the application is to avoid paying a valid claim, their actions are arguably made in bad faith.
An Insurance Claim Denial Might Not Be the Last Word on the Matter
It’s usually worthwhile to talk to an attorney any time your claim is denied. If you have a good faith dispute with the insurer, you might be able to resolve the dispute by submitting documents and making arguments that prove your claim was wrongfully denied or underpaid. Also, an apparent “good faith” ground for denial might merely be masking an improper motive. An insurance lawyer can work to resolve the dispute in your favor or uncover evidence of bad faith when it is underlying the denial.