Preventing Bad Faith: Tips for Policyholders
Insurance is supposed to provide peace of mind — a safety net when life takes an unexpected turn. But too often, policyholders find themselves battling their own insurance companies over delayed payments, underpayment, or wrongful denials. These tactics aren’t just frustrating; in some cases, they amount to bad faith insurance practices, which are illegal under California law.
At Gianelli & Morris, our California insurance bad faith attorneys have spent decades holding insurance companies accountable for acting in bad faith. We know how insurers operate, and we know how to protect your rights. Here’s what every policyholder should understand about preventing bad faith and strengthening their position if a claim dispute arises.
What Is Insurance Bad Faith?
Under California law, insurers have an implied covenant of good faith and fair dealing with their policyholders. This means they must handle every claim fairly, promptly, and honestly, giving equal consideration to the interests of the insured as they do to their own profits. When an insurer breaches this duty — for example, by unreasonably denying or delaying payment of benefits — it has acted in “bad faith.”
In the landmark case Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809, the California Supreme Court held that an insurer can be liable for bad faith if it fails to properly investigate a claim or places its own financial interests ahead of the insured’s right to receive benefits.
In addition, California Insurance Code §790.03(h) also lists well over a dozen examples of unfair claim practices, including:
- Misrepresenting policy provisions;
- Failing to acknowledge and act promptly on communications;
- Not attempting in good faith to effectuate prompt, fair settlements; and
- Compelling policyholders to file lawsuits to recover amounts due.
In the context of health and life insurance claims, these unfair tactics can have devastating consequences on individuals and families, from delayed or foregone medical treatment to financial hardship after a loved one’s death.
1. Read and Understand Your Policy
One of the best defenses against insurance bad faith starts before a claim ever arises: understanding your policy. Insurance contracts are dense documents filled with exclusions, conditions, and limitations that can easily be misunderstood. Take the time to review coverage limits, exclusions, and deadlines for submitting claims or appeals.
Ask your insurance agent or broker to clarify any ambiguous terms, and keep a clean, legible copy of your full policy, not just the summary or declarations page. In health insurance, pay special attention to preauthorization requirements and medical necessity clauses, which insurers frequently cite as reasons for denial.
In life insurance, be aware of the contestability period, limited to the first two years of coverage, during which the insurer may investigate the application for inaccuracies or omissions. Knowing these provisions helps you recognize when an insurer’s justification for denial doesn’t hold water.
When you know what your policy covers, you’re better equipped to identify when your insurer is not treating your claim fairly.
2. Keep Detailed Records
Documentation is your greatest ally in any insurance dispute. From the moment an incident occurs, keep a record of everything related to your claim. This includes copies of all correspondence with your insurer, including emails and letters, and notes from every phone conversation (including dates, times, and the names of representatives).
If your claim involves medical treatment, maintain copies of medical records, physician letters, and any preauthorization requests or approvals. For life insurance, keep proof of premium payments, policy updates, and communications with the insurer after the insured’s death. Having a clear paper trail can make it much harder for an insurer to misrepresent what was said or agreed to, and it provides critical evidence if you need to take legal action later.
3. Watch for Signs of Bad Faith
Not every disagreement with an insurer is bad faith, but certain patterns of behavior can signal that your insurer is crossing the line. Red flags include:
- Unreasonable delays in investigating or paying a valid claim
- Repetitive or unnecessary requests for documentation that stall resolution
- Misrepresentation of policy terms or exclusions
- Denials based on incomplete or outdated medical evidence
- Failure to communicate promptly or clearly explain the reason for denial
- Denials that contradict common sense, such as rejecting coverage for a clearly necessary surgery or a physician-recommended treatment plan.
For example, health insurers sometimes deny coverage by labeling a procedure as “experimental” or “not medically necessary,” even when the treatment is widely accepted in modern medicine. In life insurance, companies may claim “material misrepresentation” on an application, such as failing to disclose minor medical history, as a pretext to avoid paying a valid death benefit.
California courts have condemned these tactics. In Wilson v. 21st Century Ins. Co. (2007) 42 Cal.4th 713, the court emphasized that an insurer must base its decisions on a thorough, unbiased investigation and cannot rely on incomplete information to justify denial. When an insurer cherry-picks facts or ignores evidence that supports coverage, it risks liability for bad faith.
4. Seek Legal Help if You Suspect Bad Faith
When an insurer unreasonably delays, undervalues, or denies a valid claim, you have legal remedies under California law. Policyholders can recover the full value of the denied benefits, plus additional damages for financial harm, emotional distress and, in some cases, punitive damages meant to punish and deter bad faith conduct. Punitive damages are designed not just to compensate policyholders but to punish and deter egregious conduct by insurance companies. Courts have awarded significant punitive damages when insurers systematically use unfair claims practices or intentionally deny valid claims to protect their bottom line.
If your insurer’s conduct seems unreasonable — for example, ignoring your doctor’s input, relying on outdated guidelines, or making shifting excuses for denial — it’s time to consult an attorney. At Gianelli & Morris, we’ve taken on major insurers across California for engaging in deceptive, unfair, or bad faith claim practices. We know how to expose bad faith tactics and hold insurance companies accountable for the harm they cause.
Protect Yourself and Your Rights
Bad faith can leave policyholders feeling powerless, but you don’t have to face your insurer alone. If your insurance company is denying your request for healthcare, delaying your coverage, or refusing to honor your life insurance claim, Gianelli & Morris can help. Our attorneys have extensive experience representing policyholders in insurance bad faith disputes and have successfully challenged major insurance carriers throughout California. Call us today or contact us online for a free consultation to learn how we can help protect your rights and pursue the compensation you deserve.
