After collecting your premium dollars and promising to protect you from financial loss, insurance companies have very specific and defined obligations when one of their policyholders makes a claim. The law requires the insurance company to handle a claim fairly, honestly, and in a timely fashion. After a loss has occurred, whether it be related to a person's home, auto, or health, the insured is almost always extremely vulnerable due to the emotional and mental stress that naturally arises when an accident or illness has occurred. For that reason, courts require insurance companies to fully honor their written commitment to respond appropriately when a claim is presented.
You may have selected your insurance company based upon representations of honesty and integrity, such as that you'll be treated like a good neighbor, or that you're placing your financial and emotional security in good hands. Because of this special relationship of trust that exists between the policyholder and the insurance company, the law imposes significant duties and obligations on an insurance company that are not present in a normal contractual relationship. These higher obligations are, in part, based upon the fact that the insurance company writes the insurance contract, establishes the specific terms of the agreement without any negotiation or bargaining with the insured, sets the price to be paid for coverage, etc. In essence, insureds who have suffered a loss are literally at the mercy of their insurance company which, of course, is a very sophisticated organization that has far superior financial resources and negotiation skills as compared to its insureds.
Although the ways in which an insurance company can act in bad faith toward its insured are limited only by one's imagination, there are a number of fairly common fact patterns which often constitute bad faith. Some of these fact patterns are the following:
1) The insurance company continually creates barriers to paying the claim, such as requiring multiple or repetitive preparation of forms, submission by the insured to multiple statements or examinations, transferring the claim from one adjuster to another, etc;
2) The insurance company will hire outside experts to offer a purportedly independent opinion about the merits of the claim when, in fact, these experts are repetitively used by the insurance company and have consistently or always reached opinions that the company knows will support a denial of the claim;
3) The insurance company fails to promptly pay portions of the claim which either have been, or should be, acknowledged as being undisputed, the delay in payment being used to exert leverage over disputed aspects of the claim. This tactic financially exhausts the insured so that the insured ends up settling for less than the claim is actually worth;
4) The insurance company will impose restrictions on paying a claim which are not found within the language of the policy, such as refusing to pay a homeowner's theft claim because the insured hasn't kept or can't locate all of his purchase receipts for the items that were stolen;
5) The company will deny a claim based upon facts concerning the application for the policy, such as arguing that the insured had a pre-existing medical condition or that the insured innocently failed to remember and note that he had had another unrelated insurance claim years earlier; or
6) Insurance companies often direct their investigation only toward the development of facts which would support a denial of a claim. _ The company has the obligation to investigate all reasonably available information before making a decision on a claim, including investigation of information favorable to or provided by the insured.
As the examples suggest, a finding of bad faith requires proof that the insurance company has acted unreasonably in handling the insured's claim and, in addition, that the insurance company either knew or should have known that it was acting unreasonably. As a result, not every denial of an insurance claim is a bad faith denial. If a claim is denied and the insurance company has a reasonable and justifiable basis for denying the claim, there is no bad faith. Before any denial can be considered reasonable, however, the insurance company has to have conducted a fair, objective, and unbiased investigation into the facts surrounding the claim. If a thorough and fair investigation has not been done prior to denial, then the insurance company may have acted in bad faith.
Insurance claims which are fairly debatable may be denied if the insurance company has a valid reason for doing so and a reasonable company would have denied the claim. Needless to say, the key word is fairly, meaning that if the insurance company has not conducted a thorough investigation, or has conducted an investigation which was geared only toward developing facts which would support a denial of the claim, the insurance company's defense that the claim was fairly debatable is not available.
If an insurance company has acted in bad faith, the insured usually has a number of remedies available (the exact remedies will depend on the state in which the insured lives). The first remedy would be to recover the value of the insurance benefits wrongfully withheld by the insurance company. In addition to recovering those contract benefits, however, the insured can often seek recovery of damages for the insured's anxiety, frustration, anger, and emotional suffering caused by the insurance company's wrongful conduct. After all, you were not only purchasing financial protection, but also peace of mind.
In some circumstances, where the insurance company's conduct is dishonest or deceitful, the insured may also recover punitive damages which are damages designed to punish the insurance company for its wrongdoing and, at the same time, send a message to other insurance companies that the type of conduct in question will not be tolerated.
A determination as to whether the denial of a claim amounts to bad faith is not often an easy decision. It involves an attorney experienced in the area of bad faith reviewing the facts and circumstances surrounding the claim in great detail. Because insurance companies view bad faith claims as an attack upon both their public reputation as well as their bank account, bad faith claims are vigorously defended. As a result, any decision to pursue a bad faith claim needs to be based upon objective information and sound judgment.
Performance goals or standards
There is certainly nothing wrong with insurance companies requiring their claim handlers to be accurate and efficient in terms of paying out the company's money on claims. All companies claim to have adopted the philosophy of Pay what we owe, no more, no less. If honestly applied, there's no problem as such a goal is neutral and theoretically proper. However, what often occurs is claim management setting payment goals for the claim handlers to periodically meet, such as on an annualized basis. Some goals are proper, but many of them are unquestionably improper. For example, insurance companies have been detected telling their claim handlers that they are to reduce the average paid amount on a given type of coverage by a set percentage over the next year. The claim adjuster might be instructed to reduce the average amount paid on auto repair claims by 5% over the next year. It is universally agreed, even among the insurance companies themselves, that establishing this type of goal is inherently unfair, improper and constitutes bad faith conduct. All claims are to be paid based upon their actual value, no more, no less.
Therefore, the establishment of pre-determined goals to reduce claim payments over a given period of time is bad faith behavior because, quite obviously, it directs the claim handlers to start looking for ways to underpay the actual values of claims by 5% in order to meet the stated goal. Needless to say, the claim handler probably won't get away with the intended reduction on claims submitted by more knowledgeable and astute policyholders. Instead, these claims savings will likely occur when the policyholder is unsophisticated or, even worse, so economically vulnerable that the claim adjuster can entice the insured to settle quickly for well less than the claim is actually worth.
This is just one example why insureds sometimes find their claim adjuster to be difficult to deal with or seemingly motivated to pay as little as possible on the claim. It must be remembered that these improper corporate pressures on the claim handler do not affect them equally. Some claim handlers will bow to the corporate pressure to pay as little as possible on claims while others will ignore the pressures and go about their business by paying claims in the manner they deem fair and appropriate. The bottom line, therefore, is that if you are having problems with your claim, it's probably because you got a poor luck of the draw in terms of the clam adjuster assigned to your claim.
If you're not satisfied with your claim adjuster for any reason, you should not hesitate to request that a different claim adjuster be assigned to your file. While you would think that insurance companies would readily reassign the claim to a different adjuster as an example of good will, it is very common for insurance companies to refuse the insured's request. If such a refusal should occur in your claim, you can then be even more convinced that it is corporate practices and procedures that are causing the problem, not the individual claim adjuster.
DISCLAIMER
Please understand that the foregoing is only general information and is not intended to constitute legal advice. The law of bad faith varies greatly from state to state. A number of states do not even recognize bad faith claims, but, instead, provide alternative legal remedies for insurance company misconduct.
