Insurance Companies: Bad Faith Tactics Exposed

how do insurance companies act in bad faith

Bad faith insurance refers to an insurance company's attempt to renege on its obligations to its clients, either by refusing to pay a policyholder's legitimate claim or failing to investigate and process a claim within a reasonable time frame. Bad faith insurance practices can take many forms, including misrepresenting contract terms and language, nondisclosure of policy provisions, and making unreasonable demands on the policyholder to prove a covered loss. Bad faith insurance can apply to any type of insurance policy, including homeowners' insurance, health insurance, auto insurance, and life insurance. It is important for policyholders to be aware of their rights and to recognise the signs of bad faith insurance practices to safeguard themselves from potential financial loss and injustice.

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Misrepresenting contract terms

Insurance companies also act in bad faith when they fail to disclose policy limitations and exclusions to policyholders before they purchase a policy. This means that customers are not made aware of the full extent of their coverage until they try to make a claim, at which point the insurance company can deny coverage by citing these undisclosed limitations and exclusions.

In other cases, insurance companies may interpret the language of the policy in an unreasonable manner, or place undue restrictions on the interpretation of claim forms, to justify denying or delaying the payment of claims.

When determining whether an insurer has acted in bad faith, courts will use a "reasonableness" standard, evaluating whether the insurer's actions were reasonable under the circumstances. If the insurer did not act reasonably, they can be held accountable by the court for breaching the covenant of good faith and fair dealing.

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Failing to disclose policy limitations

In the context of third-party claims, for example, an injured party may seek policy limits information from the insurer to understand the amount of money available to compensate them. However, some insurers guard this information as if its disclosure endangers national security. This nondisclosure may lay the foundation for a bad faith claim.

For instance, in the case of Powell v. Prudential P&C Ins. Co. (1991), an insured car driven by Powell's daughter struck two pedestrians, one of whom was seriously injured. The victim's attorney sent multiple letters to Prudential requesting policy limits information, but received no response. Prudential's adjuster eventually tendered the policy limits five weeks later, but the offer was rejected, and the victim filed a lawsuit. The court ruled in favor of the plaintiff, awarding $250,000, which was 25 times greater than the policy limits. Powell then sued Prudential for bad faith. The court affirmed that the failure to reveal policy limits at the pre-litigation stage could serve as a basis for bad faith.

Similarly, in Boicourt v. Amex Assur. Co. (2000), an injured passenger in a vehicle sought policy limits information from the insurer, Amex, but the company failed to disclose this information despite a California law requiring them to do so. Amex's adjuster informed the attorney that the company policy prohibited disclosure. The court followed the Powell precedent and concluded that a conflict of interest can develop between the insurer and the insured, even without a formal settlement offer being made by the claimant. The court noted that Amex's blanket rule against disclosing policy limits saved administrative costs and gave them a negotiating advantage.

In both cases, the insurance companies' failure to disclose policy limits resulted in bad faith allegations and legal consequences. These cases highlight the importance of insurers providing transparent information about policy limitations to avoid acting in bad faith.

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Unreasonable demands to prove a covered loss

Insurance companies may, for example, ask for the same documents multiple times or fail to send an adjuster to review the damage in a timely manner. They may also switch claims processors after negotiations have started or misrepresent the statute of limitations, further prolonging the process. These actions can cause significant stress and strain on the policyholder, who is often already dealing with the aftermath of a personal injury or property damage.

It is important to note that simple mistakes or a difference in opinion between the policyholder and the adjuster do not constitute bad faith. However, if an insurance company is consistently making unreasonable demands and failing to provide valid reasons for its decisions, it may be acting in bad faith.

If a policyholder suspects that their insurance company is making unreasonable demands to prove a covered loss, they should document all interactions with the company and seek legal advice. Policyholders have the right to question the insurer's position on a claim in writing and request written responses to their inquiries. Consulting with an attorney can help policyholders understand their rights and options, including the possibility of filing a bad faith insurance lawsuit.

By recognizing and addressing unreasonable demands, policyholders can protect themselves from being taken advantage of by insurance companies acting in bad faith.

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Lack of communication

A lack of communication is a common issue when insurance companies act in bad faith. They have a legal duty to communicate with their customers frequently, effectively, and easily. This includes accepting questions, providing appropriate answers, and exchanging information for a prompt claim determination.

Insurers that limit or cut communication with their customers once they file a claim may be attempting to avoid their fiduciary responsibility. A failure to acknowledge receipt of documentation from customers or a failure to commence an investigation may be a sign of insurance bad faith.

Insurance companies use delay tactics, such as switching claims processors after negotiations have commenced, misrepresenting the statute of limitations, and making irrational demands for documentation and proof. They use these tactics to frustrate the policyholder into accepting a lowball offer or dropping the claim altogether.

Many victims of bad faith insurance tactics report that insurance companies do not return phone calls, emails, or other forms of communication in a timely manner, leaving policyholders in the dark about the status of their claims.

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Unreasonable settlement offers

Insurance companies may try to convince policyholders that there are no other settlement options available or that their policy does not cover certain expenses. They may also undervalue claims to pay out less than the policy deductible. For example, an insurance company might unreasonably offer to pay only $1,000 of a $15,000 medical bill incurred by a motorist following an accident. This is a blatant case of an insurance company acting in bad faith by making an unreasonably low settlement offer.

In some cases, insurance companies may even deny valid claims without providing a valid reason or conducting a proper investigation. They might also delay the claims process by requesting unnecessary documentation or forms, failing to send an adjuster in a timely manner, or not communicating with the policyholder. These tactics are employed to frustrate the policyholder and pressure them into accepting a low settlement offer or dropping the claim altogether.

It is important for policyholders to be aware of their rights and to seek legal assistance if they suspect their insurance company is acting in bad faith. Policyholders have the right to a prompt, fair, and equitable settlement, and insurance companies are required by law to act in good faith and deal honestly with their customers.

Frequently asked questions

Bad faith insurance refers to an insurer's attempt to renege on its obligations to its clients, either by refusing to pay a policyholder's legitimate claim or by failing to investigate and process a policyholder's claim within a reasonable period.

Insurance companies act in bad faith in several ways, including:

- Misrepresenting the insurance contract's language to the policyholder to avoid paying a claim

- Failing to disclose policy limitations and exclusions to policyholders before they purchase a policy

- Making unreasonable demands on the policyholder to prove a covered loss

- Failing to conduct a prompt and complete investigation into all valid claims made by policyholders

- Offering less money than a claim is worth

- Delaying or denying decisions on claims or requests for approval for medical treatment

If you suspect your insurance company is acting in bad faith, you can take the following steps:

- Document your complaint in writing to your claims handler and be prepared to back up your assertions with documentation.

- Contact your state department of insurance to file a complaint.

- Consult a lawyer, specifically an insurance bad faith lawyer.

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  • Aisha
  • Aisha
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