Daly and Black PC on Common Bad-Faith Insurance Practices

Insurance companies are obligated to fulfill their contracts with the insured in good faith. Good faith means abiding by the policy as it is written and following all of the steps needed to properly investigate and process a claim.

When an insurance company tries to take advantage of its customers with illegal bad faith practices, they can be sued. Fortunately for the people of Pasadena, the courts are disposed to offer relief to the policyholder rather than the insurer. In this article, Daly and Black, PC explains the 8 most common bad faith insurance practices.

1. Delay in Processing the Claim

Under good faith principles, the policyholder has the right to receive prompt service regarding his or her claim. The insurance company must not needlessly delay the settlement of their policyholder’s claim. While going through the proper steps to fulfill a claim, an insurer may reasonably need to take more time. However, insurance companies too often employ tactics to deliberately cause unnecessary delay. These tactics include, but are not limited to:

i) requesting that you obtain multiple estimates on your own before they will inspect your claim;

ii) hiring a ‘independent consultants’ to perform additional supplemental inspections;

iii) sending your claim through multiple adjusters to reach a payment decision,

iv) taking weeks or perhaps months to approve reasonable supplements;

Insurance companies do this because they want to collect more interest on the premiums they collect and believe that delaying the claim will make the insured more likely to accept a lower payment as they desperately try to secure the money needed to move past the incident.

2. Misrepresenting the Policy

The insurance agent may not always know all of the provisions in the policy. They may assure the client that the event in question is covered to entice them to buy the policy. When the client receives the policy and does not read it thoroughly, the lack of coverage may be a surprise when the claim is made. The insurance company acted in bad faith when the agent glossed over parts of the policy.

3. Failing to Investigate Claims

When an insurer neglects their responsibility to investigate claims related to the policy, the company is acting in bad faith. By law, an insured party has the right to a prompt and thorough investigation of their claim.

4. Attempting to Negotiate Settlement of a Claim

Another bad faith insurance practice is negotiation regarding the settlement of a claim. When an insured person experiences a loss, he or she must be paid a reasonable amount based on their full scope of damages up to the amount of the policy limit. Once this amount has been ascertained, the insurance companies’ efforts to negotiate a lower settlement is a common practice that falls outside the principles of good faith.

5. Denying a Claim Without Explaining Why

Denying a claim without a clear reason why is another bad faith insurance practice. When a claim is denied, the insured has the right to a detailed explanation. The insurer must make a full investigation, and the insured needs to be told exactly why the claim was denied.

6. Not Responding to Communications

When the policyholder contacts the insurance company regarding the settlement of a claim, he or she has the right to a prompt response. Unnecessarily dragging out communications is a breach of good faith.

7. Accusing the Insured of Fraud

Rarely, insurers use coercive practices to manipulate their customers into accepting a lower settlement. One example is threatening to cancel the policy unless the insured accepts a lower settlement. Accusing the customer of committing insurance fraud without clear evidence is another bad faith practice.

8. Demanding Unnecessary Documents from the Insured

A common bad faith practice is requiring the insured to produce more documentation than is necessary or required to determine your rights under the policy. An endless cycle of paperwork delays the claim and allows the insurer more room to evade fulfilling the policy.

These eight examples cover only part of the spectrum of bad faith insurance practices. If you believe your insurance company is acting in bad faith, you should seek the advice of an experienced attorney to help you receive the payment to which you are entitled.