General Insurance Questions

In General, What Obligation Does the Insurance Company Owe to Me Regarding My Claim?

In most states your insurance company has a duty to handle your claim promptly, reasonably and in "good faith."

What Does the Duty of "Good Faith" Involve?

The duty of "good faith and fair dealing" basically means that your insurance company must:

  1. Adjust your claim (either pay it or deny it) within a reasonably prompt time period,
  2. Cooperate with you regarding the claim (provide timely response to your letters and phone calls),
  3. Tell you in writing precisely why it is denying the claim specifying each contract term or provision upon which it relies,
  4. Attempt to find a basis to pay the claim rather than find reasons to deny it, and
  5. (as the duty itself states) "play fair" with you.

What is Insurance Bad Faith?

Insurance Bad Faith is any matter regarding an insurance claim by an Insured that is wrongfully denied by the Insurer. An insurance policy is considered a contract between you (the Insured) and your insurance carrier (the Insurer). This contract requires that your Insurer acts in "good faith" toward you. When an Insurer unreasonably withholds the benefits of the policy from its Insured, it is considered to be in "bad faith."

Insurers may attempt to deny claims for any reason they can. Furthermore, even when an Insurer acknowledges that a claim or lawsuit is covered by the insurance policy, it may attempt to underpay the claim. To determine whether an Insurer is acting in good faith, the Court must determine whether or not the Insurer's conduct is "reasonable." In most states, an Insurer may not put its own interest above that of an Insured. To prove bad faith, the Insured need only show that the Insurer failed to honor the contract and had no cause to withhold what was due.

The Insurer has a duty to deal fairly with Insureds. Every insurance contract contains an unwritten covenant or promise of good faith imposed by law upon an Insurer to always act fairly towards its Insureds in handling their claims. Insurers must always meet the reasonable expectations of the policyholder as well as give as much if not more consideration to the financial interests of its Insureds than it does to its own financial interests.

What Are Some Examples of Bad Faith?

There are many examples of how an Insurer can commit bad faith. They include: failing to investigate a claim promptly and thoroughly; delaying payment unreasonably; denying benefits to a claim unreasonably; using unreasonable interpretations in translating policy language; refusing to settle the case or reimburse you for the entirety of your loss, etc. Insurance Bad faith constitutes not only breach of your insurance policy contract with the Insurer but also includes injuries personally sustained outside of the insurance contract as a result. If such a breach exceeds that of being "unreasonable" and is demonstrated to be dishonest, deceptive or fraudulent, a judgment may be obtained and punitive damages awarded exceeding compensation for the loss under the policy as punishment for bad faith and to deter similar conduct by the Insurer in the future.

Why Do Insurers Commit Bad Faith?

There is a very substantial benefit and good economic reason for Insurers to commit bad faith. Insurers receive thousands of claims every day, many of which are wrongfully denied. Very few Insureds dispute this wrongful denial and thus Insurers save considerable amounts of money that they would otherwise be obligated to pay.

Here's an example of how it works. Let's say an Insurer denies 100 claims. Of these 100 claims, ninety-five go unchallenged and disappear while five claims are disputed. Of these five, the Insurer reverses its earlier decision to deny coverage and agrees to pay on four of the claims but continues to refuse coverage on the fifth claim. The fifth claimant then files a lawsuit and recovers bad faith and punitive damages against the Insurer. Even if this claimant who filed suit recovers millions of dollars against the Insurer, the insurance company still saved millions of dollars by not paying the other 95 claims that were denied and not disputed. Thus, Insurers gain substantial financial and economic advantage by continuing to deny claims.

Do Insurers Have the Right to Deny a Claim?

Insurers have the right to deny a claim where the Insured has not lived up to the insurance contract, or where the claim is not covered by the policy or is fraudulent.

What Should an Insured Do in the Event of a Claim?

An Insured should immediately notify the Insurance Agent; Collect and review the insurance policy as it relates to the relevant provision(s) of the claim; Most importantly, document all events, notes and all contacts and communications made, whether written or verbal with the Insurer and those related. Submit your claim promptly as most state laws and most insurance policies require that claims be presented within a limited period after the loss, otherwise, if the Insured waits too long, the Insured loses the right to seek benefit on a claim.

Do I Owe Any Obligations to the Insurance Company Concerning My Claim?

Yes. Decisions from the courts in many states indicate that the you (the insured) have a reciprocal obligation to act fairly and deal in good faith. This would include your:

  1. Submitting your claim for benefits on a timely basis (bearing in mind that most policies state when a claim must be submitted after a loss has occurred),
  2. Providing all information that the insurer reasonably asks for (if it is entitled to it under the policy or the law),
  3. Giving a statement under oath concerning the claimed loss (again, if the policy so requires, as many policies do), and
  4. Generally cooperating with the insurer regarding the loss (such as allowing it to inspect the damaged property in case of a damage claim, for example, a claim after a flood or fire).

Is There Anything in Particular I Should Remember When I Am Making a Claim or When I Am Dealing with My Insurance Company?

The best things to remember are "get it in writing" and "put it in writing." Phone calls are great for quick contacts or easy answers (like 'yes, we received your claim' or 'yes, your premiums are current'), but you should always remember to put it in writing. This includes not only the claim itself (generally a specific requirement under most policies), but all contacts with the insurer, ideally with the name of the person you spoke with and the time. If you speak by phone with someone at the insurance company, make a written note of it and keep it in a separate file. If someone is rude to you, make a note of what s/he said, his or her name, and date the note. WRITE IT DOWN!

Do Damages for an Insurer's Bad Faith Go Beyond What I Would Be Entitled to Under the Contract?

Yes. In addition to what the insurer owes you under the policy (plus interest), if the denial can be shown to have been "unreasonable," you might also recover "consequential damages" (monies you had to pay out of pocket because of the denial), and "extra contractual damages" to compensate for mental and emotional distress, and, in some cases, "punitive" or "exemplary damages" designed to punish the insurer and deter it and its employees from wrongfully denying similar claims in the future.

Can I Recover These "Extra Contractual Damages" in Every Case Where Benefits Have Been Denied?

No. Again, the denial by the insurer must be shown to have been unreasonable. A legitimate dispute or disagreement over coverage or benefits will likely not give rise to a bad faith claim. Further, in order to recover punitive damages, one must show that the insurer has acted with "oppression, fraud or malice" and, indeed, that its conduct was "despicable". (These are difficult standards to reach.)

What Can I Recover If I Sue My Insurer for Bad Faith?

If the Court finds the Insurer to have acted in bad faith, the Insured is eligible to recover the benefits of the policy for the claim as well as all consequential losses and damages he/she suffered as a result of the Insurer wrongfully denying the claim, including damages for emotional distress. This includes any attorneys' fees that the Insured had to pay in order to force the Insurer to live up to its contractual obligations; and, in cases where the Insurer has exhibited flagrant, intentional, and/or gross misconduct, punitive damages may be awarded.

What Are an Insured's Options When an Insurance Carrier Commits Bad Faith?

When an Insurer commits bad faith, a policyholder should first attempt to negotiate a resolution and an acceptable settlement with the Insurer. If this fails (Insurers are masters of claims negotiation), the Insured is left with two options: to either do nothing and give up, or sue the Insurer. Unfortunately, a large majority of people choose to do nothing and give up. Frequently, when an insurance attorney becomes involved, an Insurer will take the claim much more seriously and look to modify and correct its earlier bad faith direction in order to minimize the amount of the claim, potential bad faith implications, and loss and punitive damages against them. Just as frequently, however, the Insurer may become even more difficult as it realizes that it now must justify its actions. Typically, however, even when it is necessary to sue an Insurer for bad faith, the case is often settled before or at the time of trial.

How Can I Determine If I Am Being Treated Unfairly by an Insurance Company?

Every insurance company has statutory and common law obligations to deal fairly with its policyholders and claimants. And, there are a variety of remedies when there is an unfair claims practice or unfair treatment of a policyholder or claimant.

The governing statutes, regulations and cases are not easily digested by anyone, especially by a distraught policyholder who needs a denied medical treatment immediately.

A good rule would be to consult an attorney experienced in processing insurance claims whenever an important claim is denied or unreasonably delayed. You are the best person to judge how important the claim is. When an insurance company makes a decision or takes a position that adversely impacts an important claim, you should consult with an experienced attorney promptly.

Some common unfair insurance company practices are the denial of payment for a medical test, denial of future therapy, denial of disability benefits, failure to negotiate in good faith, denial of insurance coverage, and refusal to consider new proof or reports.

What Can Be Accomplished by Fighting an Unfair Insurance Company Practice?

Depending upon the particular claim that is being unfairly handled, there are multiple goals that can be achieved by an experienced attorney on your behalf. These can take the form of an order requiring payment of outstanding bills, an order mandating authorization for a medical test or treatment, an order declaring your rights or the meaning of policy terms, a judgment for money damages as compensation, or the payment of punitive damages.

What Will it Cost to Have an Attorney Represent Me in Fighting an Unfair Insurance Company Practice?

Experienced attorneys generally provide a free consultation for anyone who feels that they have been treated unfairly by an insurance company.

In addition, if you are the policyholder or insured, many states provide that the insurance company must pay your attorney fees and costs when you are successful in challenging improper conduct or an adverse decision. Because of this, many attorneys will undertake representation without requiring that you pay fees or costs out of your pocket.

Even in cases that must be filed against a liability insurance company, it is likely that a contingency fee would be accepted by an experienced attorney. This would mean that the attorney would accept a percentage of the amount recovered on your behalf. No fee would be charged in the event no recovery was accomplished.

Should I Attempt to Settle My Own Claim?

The answer to this question really requires you to first answer the following: How important is a fair settlement to you? If your answer is that the accident or injury that generated your claim had a serious impact on you, your family, or your business, then you should not settle the claim with the adjuster without assistance from a professional.

This is because all insurance companies are in the business of settling claims for the lowest sum possible. They are also in the business of reducing the value of claims in a particular geographical area. Most importantly, insurance companies are in the business of developing evidence to defeat or minimize the value of all claims in order to obtain higher corporate profits.

All of these facts work to your disadvantage in a negotiation process. While you are engaged in conversations with an apparently cooperative and pleasant claims adjuster, the wheels are turning in the background to reduce the amount of your claim.

The insurance company's objective is to keep you engaged in a dialog with the adjuster long enough to give it the upper hand in the final negotiation.  The concept is that the longer it takes for you to get paid, the less you will take.  Statements are being taken from witnesses; photographs of the scene and of property damage are being obtained; surveillance videos may be in progress; if you provided signed medical authorizations to the adjuster, contact with the doctor and his staff is common.

Then, the actual negotiation process itself is likely to be a mismatch because you are talking to a person who negotiates for a living. You may be an expert at what you do for a livelihood, but unless you make a living negotiating claims, it is unlikely that you have the negotiating skills to match a professional negotiator. The adjuster uses this mismatch to his or her advantage. You are repeatedly confronted with strategies that the adjuster has practiced for years. The result is likely to be a settlement that favors the insurance company by a huge amount.

A skilled attorney acting as your negotiating representative has the goal of leveling the playing field and overcoming these disadvantages in dealing with the adjuster, so as to properly present and argue your side of the claim. With your attorney advocating your side of the dispute through the presentation of a thorough investigation of the facts and legal rules, assures that favorable evidence is gathered and preserved. It also assures that avenues of financial recovery beyond the obvious ones are considered.

An attorney also knows the categories of losses that can be presented for compensation.  The careful development and presentation of each relevant category of loss impacts the value of the total claim.

The insurance company knows well the difference in negotiating with an unrepresented private citizen and an experienced attorney. It also knows the difference between an attorney who does not take claims to court when negotiations fail and one who does. Having representation is important, but having respected, experienced representation is best.

As you can see, for the overwhelming majority of claims, it is not advisable to attempt a resolution on your own. This is especially true when initial consultations with experienced attorneys are usually free and the ultimate fee arrangement, if an attorney is retained, is customarily a percentage of the recovery.

Can I Rely upon the Insurance Commissioner in My State to Help Me Overcome an Unfair Insurance Company Practice?

There are procedures in most states for the reporting of unfair insurance practices to the Insurance Commissioner. This reporting serves a good purpose because it creates a database of unfair practices that can be accessed by you and other policyholders and claimants to determine whether the misconduct is repeated by the company. And, at some point, the evidence compiled by the Insurance Commissioner may result in some mandated changes within a company or fines. On the other hand, the most complete and timely results for a particular person are usually achieved by the intervention of a private attorney (sometimes prodding the Insurance Commissioner). An experienced attorney knows what can be expected from the Insurance Commissioner and what needs to be done through the court system or administrative process.

Are There Time Limits That Can Forever Bar a Challenge of an Unfair Insurance Company Practice?

Each state has statutes of limitations and regulatory or administrative time requirements that, if not observed, may forever bar action on your behalf to overcome an unfair practice or decision by an insurance company. Experienced lawyers are familiar with the applicable time limits and can assure that action is started before the time runs out. Of course, the attorney can only work with the time that you leave him or her. If you delay in seeking a consultation, it is possible that some or all of your remedies will have been lost by the delay.

Are There Time Limits on My Stating a Claim of Bad Faith Following the Denial of My Claim?

Yes, as indicated above, most insurance policies have specific time limits on when a claim must be filed after a loss, and also when any lawsuit "on the policy" (a lawsuit seeking contract benefits) must be filed. Beyond those time limits, the law will require that a bad faith claim or lawsuit be filed within a certain time following denial of the claim. While there is some question as to what precisely is that time limitation (it varies from state to state, and some state decisions are inconsistent) it is recommended that a bad faith claim or lawsuit be filed as soon as possible, ideally within one year from the date of the denial, in order to be certain that the right to recover certain types of damages (punitive damages, for example) is not lost.

What Is an Example of a Common Problem Which Arises from the Ordinary Automobile Insurance Policy?

When you apply for coverage you are required to complete an application form. The purpose of this form is for the company to assess the extent of the risk you, as one of its insured, pose for the company. Putting it another way, what will you and your family likely cost your insurance company? Who will be driving the family automobile? How safe are these family members at the wheel?

Many application forms are ambiguous. I believe that is intentional so the insurance company can deny coverage if the opportunity presents itself. The first order of business for any insurance company when a claim is made is to determine if there is any reason for it to conclude that there is no coverage applicable. Very often the application is the reason for denial of coverage.

The application used by many companies is ambiguous because it is not straightforward. It contains a box which is printed in capital letters and reads, DRIVER INFORMATION, then following, "list all persons 14 years or older who are residents of your household". How do you respond? If you have a person 14 years or older in your residence does that include the son and daughter away in college? Or other children who have their own vehicles? Is the company trying to determine who will be driving the family automobile? Or who are all the members of the family who live at the family residence?

Ambiguities by law are construed against the insurance company and are resolved in favor of coverage. The insurance company that denies coverage because a member of the family was 14 years of age and not listed should not win. In addition, the company will be required to pay your attorneys' fees and costs.

Do not accept a rejection of coverage or any other denials. There is a very good chance you will prevail. An experienced attorney will study the insurance policy, the exclusions, and the endorsements. The insurance company may be in violation of claims settlement statutes, which will also permit you to prevail.

If My Insurance Company Denies My Claim, Do I Have Any Rights?

Absolutely yes. If an insurance company fails or refuses to honor its contract and pay a valid claim, you have the right to bring a civil action for damages against that insurance company. In addition to suing for a "breach of contract", you might be able to bring a "tort" claim seeking damages based upon the insurer's "bad faith" handling of the claim.

Does this Apply Only to Certain Types of Insurance Claims?

No. The unsupported denial of any insurance claim (including claims under policies covering auto, disability, life, health and property such as homeowners or casualty claims) may subject the insurer to damages that go far beyond the amount the company should have paid under the insurance policy in a civil action.

Can I Assert a "Bad Faith" Claim on Every Type of Insurance Claim That I Might Present to an Insurer?

No. Claims under many Group insurance policies providing employee benefits are subject to exclusive rights and remedies under Federal legislation (the Employee Retirement Income Security Act of 1974 - "ERISA"). Unfortunately for consumers, most "bad faith" rules developed by state courts simply do not apply. The more extensive damages usually recoverable in a bad faith case are basically precluded in an ERISA case, although the insurance company or plan may have to pay your attorneys' fees if you are successful in an ERISA case.

However, do not take the insurer's mere assertion that the policy is "ERISA regulated" as gospel. Many policies which the insurer claims are ERISA plans are outside ERISA regulation. In such cases, contrary to the position often taken by the insurance company, bad faith rules and the extra contractual damages available may indeed apply.

Many health insurance and HMO plans, and certain other policies, require that disputed claims be subject to arbitration and, as a result, a traditional lawsuit in a court seeking bad faith remedies may not be possible under such policies.

Definition of "Twisting Life Insurance"

It is considered a form of fraud when an insurance agent, purely in order to make a sale, induces a person who already has a satisfactory life insurance policy to surrender the existing policy in order to obtain cash to buy new policy from the agent.  This is called "Twisting" or "Churning" a policy and it is a violation of the regulations governing the sale of insurance.

Denial of Business Interruption Insurance Claim?

Business Interruption Insurance compensates for lost income when a business must shut down because of accidental damage, as from a fire or a broken pipe. It also covers operating expenses, that must continue to be paid after the catastrophe.  Often times, insurance companies know that small business owners are under tremendous pressure to reopen after this type of incident and may not be in a financial or emotional state to negotiate the best possible settlement of a Business Interruption insurance claim.  In fact, it is all too frequent that an insurance company will offer mere pennies on the dollar of the actual value of the claim.  Another common tactic used by insurance companies is to raise questions about the cause of the incident, putting fault onto the shoulders of the insured, so as to force an unfair settlement.  The insurance company may also improperly discount the value of lost sales or damaged inventory.  When this happens, the insured may have a cause of action for breach of the insurance contract, or in extreme situations, bad faith by the insurance company.

Denial of Homeowner's Insurance Claim?

Whenever anyone buys a home using bank financing, the bank requires the owner to purchase a policy of Homeowner's' Insurance.  But Homeowner's Insurance was invented to protect the homeowner, not just the bank.  If someone is injured on your property, your Homeowner's Insurance must provide you with a legal defense.  If your property is damaged due to a fire or water leak, the insurance company must cover the loss.  Unfortunately, insurance companies do not always honor their legal obligations to pay fairly on Homeowner's Insurance claims.  When this happens, the insured may have a cause of action for breach of the insurance contract, or in extreme situations, bad faith by the insurance company.

Please feel free to give us a call at 1-800-306-6010 or contact us online.

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