When you take out insurance, you’re buying a promise: that if something goes wrong, your insurer will step in and help. Most of the time, that promise is kept. But sometimes, insurance companies delay, underpay or flat-out deny valid claims. When this crosses the line from a simple mistake to unreasonable or deceptive practices, this is known as ‘insurance bad faith’.
Simply put, bad faith is when an insurer doesn’t co-operate honestly or fairly with its policyholders. Every insurance contract includes an implied duty of ‘good faith and fair dealing’. When a company violates that duty, there are often legal options worth exploring.
Below, we’ll break down what insurance bad faith can look like, why it happens and what you can do about it.
Examples of insurance bad faith
Bad faith can come in a few different forms:
Unreasonable delays
This is when an insurer drags its feet for months, asking for the same documents over and over again, or going silent without updating you on your claim.
Denying a claim without a good reason
You receive a denial letter with little to no explanation, or with a reason that clearly doesn’t match the terms of your policy.
Misrepresenting the policy
This is when an adjuster claims something is ‘not covered’ when it is clearly written in the policy. They may try to twist the meaning of certain language or clauses to get out of paying.
Lowball offers
Sometimes an insurer will admit that a claim is valid, but will make an offer that is far below the actual value, hoping you’ll accept it out of desperation. It’s important to recognize the signs of insurance bad faith so that you’re not being taken advantage of.
Why does it happen?
Insurance companies are businesses, and like any business, they watch their bottom line. Paying out claims reduces profits, so there’s often pressure to avoid or minimize payouts. This is particularly the case with smaller insurance companies that are more likely to financially struggle.
Insurance bad faith can also be the result of poor training, overwhelmed staff or adjuster incentives/quotas that may encourage payout restriction.
Of course, none of these reasons are excusable for taking advantage of policyholders, and it’s important that policyholders fight back to prevent bad faith becoming acceptable practice.
How to combat it
If you suspect bad faith, start documenting everything. Ask for exclamation in writing and make sure that specific policy provisions are cited.
In cases where you’re being denied a large payout, it’s often worth getting professional legal help. With the help of a lawyer holding insurance companies accountable, you can often level the playing field.
If payout delays have been costly, you may even be able to seek out compensation for additional damages on top of the claim money you are owed. Most insurance companies will back down before it reaches the courtroom, provided your argument is valid and backed up with evidence.
Final thoughts
Insurance bad faith is a serious breach of trust that can leave you financially and emotionally drained. Understanding what it is, recognizing the warning signs and knowing how to respond can help you protect yourself, while helping to hold unscrupulous insurers accountable. Always consider getting professional legal advice so that you know the best way to proceed.
