Bad Faith Insurance 101: Everything You Need to Know

Insurance companies are generally thought of as “protectors.” You pay them an annual fee, either in a lump sum or installments, and they provide coverage in case of catastrophe. Insurance companies are there when you have an automobile accident to repair or replace your vehicle and get you back on the road. They may give relief when you’ve had a house fire and need remodeling work or replacement of furniture and other belongings.

Sometimes, though, your insurance company may not act honestly in fulfilling your claim. Dishonest dealings by insurance providers are called bad faith insurance claims. If you’ve been a victim of a bad faith claim, you could be entitled to damages greater than the face value of your actual policy. Here is everything you need to know if you think your insurance company may be acting in bad faith against you.

What Bad Faith Insurance Looks Like

Bad faith insurance practices do happen. If you have made a legitimate claim to your insurance company and they have denied it without proper investigation, without providing documentation, or for other reasons, they’re acting in bad faith. Examples of a bad faith claim are as follows:

  1. Denying a claim without proper cause. Your insurance company must provide a reasonable explanation for denying your claim. Some companies will cite language in your contract that may be confusing, or use obscure terms for their denial.
  2. Failure to complete a thorough investigation in a timely manner. Your insurer may drag their feet on a claim investigation. Once you have submitted all the necessary or required information for your claim, the company has a duty to act on it quickly. If they take an unreasonable amount of time to begin an investigation or do not complete a comprehensive one, they may be acting in bad faith and be liable in a suit.
  3. Refusing to pay a valid claim. If your insurance company refuses to pay your valid claim, you may pursuit a bad faith claim.
  4. Refusal to give documentation supporting their denial. If you ask your insurance company for documents related to your claim or your policy, they are under obligation to provide it.
  5. Attempting to settle for less than the claim is worth. If you have been injured in a motor vehicle accident and have $10,000 of medical payments insurance, your insurer might try to settle for paying $4,000 of that. This is a form of a bad faith insurance practice.

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