People carry insurance policies to protect themselves from financial exposure and liability. In some cases, insurance coverage may be mandatory. Mortgage lenders typically require that new home buyers carry coverage to protect the collateral property, for example.
Many other policies are optional. Successful professionals and those with valuable assets or dependent family members may carry a variety of different types of insurance for their financial protection. Should challenging situations arise, policyholders usually expect to make straightforward claims.
Unfortunately, some insurance providers engage in bad faith practices that violate the law. Instead of upholding their policies as they should, they try to deny valid claims and manipulate policyholders into accepting less than they deserve. What are some of the most common forms of bad faith insurance that policyholders may experience?
1. Misrepresenting the policy
Insurance professionals reviewing large claims sometimes try to take advantage of consumers. They intentionally misrepresent the terms of the policy and the obligations imposed on the policyholder.
For example, they might claim that the policy does not provide coverage for living expenses while a home is unsafe to occupy. Other times, they might insist that the claim is entirely ineligible for coverage due to the details of the situation. Trying to trick or confuse policyholders into giving up or settling their claims for low amounts is a common example of bad faith insurance practices.
2. Delaying claim resolution
Insurance companies sometimes hope to wait out policyholders by creating unnecessary delays in claim processing. Insurance professionals may refuse to send proof of loss documents when policyholders initiate claims.
They may drag out investigations for weeks or months. They may claim that they didn’t receive documentation from the policyholder and delay issuing a check. The goal of such conduct is often to create enough frustration in the policyholder that they simply give up and cease pursuing the coverage that they deserve.
3. Offering insufficient settlements
Settlements are often cost-effective options for insurance providers. They eliminate liability in return for a lump-sum payment. Often, they offer well under the policy limits and possibly well below the likely costs of the covered incident. The goal is to protect the company at the expense of the policyholder, who cannot request additional compensation later even if they have additional expenses.
Bad faith insurance practices may lead to litigation against an insurance company. Policyholders denied the coverage that they deserve may be able to take legal action to hold the insurance company accountable. Reviewing policy documents and insurance claim details can help policyholders validate whether bad faith insurance negatively impacted a recent claim.