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Understanding bad faith insurance practices

On Behalf of | Nov 15, 2023 | Business Law

Insurance policies are legal contracts, and both parties—the insured and the insurance company—have certain obligations and responsibilities.

Bad faith insurance refers to a situation where an insurance company acts dishonestly or unfairly toward its policyholders when handling a claim.

What is a bad faith insurance practice?

Examples of bad faith insurance practices may include:

  • Unreasonable delays: The insurance company intentionally delays the processing or payment of a valid claim without a legitimate reason.
  • Incomplete investigation: This involves failing to thoroughly investigate a claim or purposefully conducting a biased investigation to avoid paying a legitimate claim.
  • Denial without proper cause: Some insurers may deny a valid claim without a reasonable basis or without conducting a proper investigation – or even any explanation.
  • Misrepresentation: An insurer may provide false or misleading information to the policyholder regarding their coverage, the claims process or the policy terms so that the policyholder is deceived about the insurance company’s true obligations.
  • Lowballing settlement offers: This involves offering an unreasonably low settlement amount to the policyholder, even when the claim’s value is higher (which can be effectively combined with delays to make a policyholder desperate enough to accept).

When an insurance company acts in bad faith, it means they are not fulfilling their duties in an honest, fair and timely manner.

What can consumers do when insurance companies behave this way?

There are several steps consumers can take to combat the problem of bad faith by their insurance company. First, it’s important to carefully review the insurance policy to understand the coverage, terms and conditions. Knowing the policy’s terms can keep a policyholder from being misled by insurance adjustor doublespeak.

Second, policyholders need to keep thorough records of all correspondence, including emails, letters or texts related to the claim – and notes from on any calls along with what was discussed. It’s also wise for consumers to address their specific concerns about any delays, misrepresentations or other questionable behavior in writing, so that a paper trail is created.

Finally, it may take legal action to resolve the issue. When a consumer has tried being reasonable and proactive to no avail, it may be time to explore additional options by seeking legal guidance.