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Navigating bad faith disability claim denials can be challenging for policyholders, as insurance companies are required to act fairly and in good faith. This comprehensive guide outlines key elements of bad faith claims, the relevant statutory laws, and the damages policyholders may seek. If you're facing a denial, consulting an experienced attorney near you can help protect your rights and ensure your claim is properly evaluated.
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Discover how to navigate bad faith disability claim denials with our comprehensive guide for policyholders. Understand your rights and learn how an experienced attorney near you can help you challenge unfair insurance practices and seek the compensation you deserve.
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Illustration of a frustrated person reviewing a denied disability claim letter, with a magnifying glass highlighting 'Bad Faith Denial' and a lawyer offering guidance. The image represents legal assistance for disputing unfair insurance practices.
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Mar 3, 2025 04:54 PM
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Understanding Bad Faith Disability Claim Denials: A Comprehensive Guide for Policyholders
Bad faith disability claim denials arise when an insurance company isn't handling a disability claim fairly. Insurance companies must act in good faith. This requires insurers to:
- Properly investigate claims
- Pay disability insurance claims when warranted
- Not unnecessarily delay the process
💡 For every post in this series, scroll down to “Related Posts.”
Elements of a Bad Faith Insurance Claim Denial
In general, the bad faith disability claims process involves:
- The liability insurance company refuses to pay or underpays a claim without a reasonable basis
- Even if the company has a reasonable basis for denial, failing to properly investigate the claim on time
Across the country, these elements may differ greatly. They can be more or less restrictive, depending on the state.
For example, in some states, to prove an insurance bad faith claim, a policyholder must prove:
- The insurer's conduct was unreasonable
- The insurer either had knowledge of or reckless disregard for the fact that its conduct was unreasonable
By contrast, to prove an insurance bad faith claim in California, the insured must prove:
- Benefits due under the policy were withheld; and
- The reason for withholding benefits was unreasonable or without proper cause.
The insurance company must have acted unreasonably or without proper cause in withholding the benefits warranted under the policy.
Reasonableness is generally an objective standard. An insurer's erroneous failure to pay benefits under a policy doesn't necessarily rise to the level of bad faith. Missed calls or lost paperwork don't meet the required element of unreasonableness.
Also, an insurer denying or delaying the payment of benefits due to the existence of a genuine dispute with the insured about the existence of coverage or the amount of the insured's coverage generally isn't considered bad faith. But, in general, an insurance company acts unreasonably if it ignores evidence that supports the existence of or the amount of coverage owed to the insured for the subject claim.
Bad Faith Statutory Law
Many states have statutes addressing bad-faith disability denials. Colorado law, for example, provides that insurance companies must not unreasonably delay or deny payment of a claim for benefits owed. In other states, the statutes of consumer protection and unfair insurance practices may be used to file claims based on bad faith.
Conduct Which May Amount to Bad Faith
Many types of conduct on the part of an insurance company may rise to the level of bad faith:
- Deceptive practices or deliberate misrepresentations to avoid paying claims
- Deliberate misinterpretation of records or policy language to avoid coverage
- Unreasonable conduct in litigation
- Use of an improper standard in denying a claim
- Arbitrary or unreasonable demands for proof of loss
- Abusive and coercive tactics to settle a claim
- Adjusters failing to investigate a claim per the company's procedures or investigate within a timely manner
- Failing to maintain adequate investigative procedures
Injury Law Damages
An insurance company that acted in bad faith may be liable for damages far exceeding the policy limits. The types of damages you may seek in a bad faith claim differ from state to state. A personal injury attorney can help you seek:
- Liability for judgments in excess of the policy limits: If your own insurance company acts in bad faith, it may be liable for amounts exceeding the policy limits. Imagine you're in an auto accident. The damages exceed your auto insurance coverage. The insurer might be responsible for the extra costs if it acted in bad faith.
- Contract damages: These are damages resulting from a breach of contract. Imagine your insurer refuses to pay a valid claim (say, property damage from a car accident) for which you've been paying premiums. This could constitute contract damages.
- Emotional distress: This is mental anguish caused by the insurer's bad faith actions. If a lowball settlement offer leads to anxiety and stress, these could be considered emotional distress damages.
- Economic Loss: This involves financial losses incurred because of the insurer's bad faith actions. For instance, your health insurance company unjustifiably denies a valid claim. This leads you to pay hefty medical bills. You can seek compensation for this economic loss.
- Punitive Damages: These are damages awarded to punish the insurer for its bad faith behavior. For example, imagine an insurer intentionally misleads an uninsured motorist about their insurance coverage. This results in severe financial strain. In this case, a court might award punitive damages.
- Statutory Penalties: These are penalties enforced by statute when an insurer behaves in bad faith. Imagine an auto insurance company failing to make a timely payment after a car accident. It might face statutory penalties under that state's insurance laws.
- Statutory Interest: This is interest that accrues on unpaid damages. Imagine, for example, an insurer making a lowball settlement offer after a car accident. This delays the payment. Statutory interest may accumulate on the unpaid part in this case.
- Attorney's Fees: If you sue your insurer for bad faith and win, you may be able to recoup your legal costs. These can include attorney's fees. Attorney's fees can become expensive, especially in complex insurance cases involving issues like uninsured motorists or extensive property damage.
Get an Initial Consultation From an Insurance Lawyer For Your Disability Claim
Insurance companies put their policies in fine print for a reason. Insurance contracts are extremely complex and well-written, often by insurance attorneys. Knowing whether your insurance carrier is acting in good faith is difficult.
A disability insurance law attorney can help claimants understand bad faith in the context of disability insurance. They can help you with the requirements necessary to prove your legitimate claim. Many personal injury lawyers offer free case evaluations. This way, you won't have to worry about paying upfront for legal advice from an experienced attorney. ReferU.AI is the only platform that leverages AI to efficiently and accurately assess each user's unique legal needs and objectively recommend attorneys based on their proven success in similar cases according to actual court records. By providing smarter results, users gain easier access to better representation and outcomes.
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