Because insurance companies oftentimes hold power over their insureds when it comes to claims, it is important to understand how an everyday individual making an insurance claim is protected. Insurance claims are typically made because something has gone wrong or something bad has happened which is why policyholders can be vulnerable but should also know how they are protected.
Elements of a bad faith insurance claim
In most insurance policies, courts will find an obligation of fair dealing and good faith on the part of the insurance company. The policyholder will generally be required to show two things to make a successful claim for insurance bad faith including:
- Benefits due to the policyholder under their policy were withheld: The policyholder will need to demonstrate that they had a valid claim and that the claim was denied.
- The reason benefits were withheld was unreasonable: Whether or not the claim was unreasonably denied is objectively evaluated based on the situation when the decision was made.
Factors used to evaluate a bad faith insurance claim
Some factors may be used to evaluate if the insurer acted in bad faith in denying the claim including:
- The insurer misrepresented relevant facts or insurance policy provisions;
- The insurer failed to acknowledge the claim or promptly act after receiving it;
- The insurer failed to adopt or implement reasonable standards for processing and investigating claims;
- The insurer failed to either approve or deny the claim within a reasonable time period after the insured submitted proof of loss; and
- The insurer failed to provide a reasonable explanation for why the claim was denied.
What is required to show insurance bad faith can vary by state so policyholders should be familiar with how insurance bad faith is defined in their state. Also, because insurance bad faith claims can be complex and there can be different types of legal actions, it can be valuable to have trained guidance when taking on an insurance company the policyholder believes has improperly denied a claim for coverage.