INSURANCE CLAIM DENIED: BAD COVERAGE OR BAD FAITH?
November 8th, 2019 | Michael A. Lombardo, III
You pay your insurance premiums faithfully. You never filed a claim. But when a freak storm severely damages your home, your claim is denied. Do the circumstances provide a good reason for the denial? Or is your insurance company acting in bad faith?
Generally speaking, insurance policies serve two basic purposes. The first is to protect people should they suffer a loss to their person or property. This is what is known as first party coverage.
The second purpose of an insurance policy is to provide third party coverage, which protects an insured from losses suffered by others. Under this coverage, the insurance company agrees to defend and indemnify the insured for such loss.
Duties of Insurance Companies
HKQ Law Attorney Michael A. Lombardo, III notes that “In exchange for their premiums, policyholders are owed a number of duties by the insurer.” They include a duty to provide coverage, a duty to uphold the terms of the policy, and a duty to pay any valid claims that are covered by the policy. In addition, insurance companies also owe an implied duty of good faith. The Pennsylvania Unfair Insurance Practices Act also sets forth responsibilities and prohibited procedures.
There are certainly valid reasons for an insurance company to deny claims. For instance, a claim may be denied if the responsible party failed to pay the premiums in a timely fashion. Another example is denying a beneficiary death benefits because the insured failed to disclose medical conditions on the policy application. Failure to report an automobile accident within a reasonable time frame can also lead to a denial of a claim.
Insurance policies often contain exclusions. These policy provisions eliminate coverage for certain risks which the insurer is unwilling to insure. Damage caused by a flood is a common exclusion in homeowners’ policies. Intentional damage is not typically covered. Nor are losses that result from a crime. For example, a Directors and Officers (D & O) policy would typically exclude coverage for loss relating to fraudulent or criminal conduct. Healthcare plans often exclude routine foot care, which is especially important for certain people such as those trying to manage diabetes.
Bad Faith by Insurance Companies
It is not uncommon for insurance companies to deny valid claims. Depending on the situation, the denial may rise to the level of bad faith.
Examples of bad faith by an insurance company include (but are not limited to):
• Failure to affirm or deny coverage of claims within a reasonable time
• Failure to promptly provide reasonable explanation when denying claim or making a compromise settlement
• Failure to comply with or conform to industry standards
• Failure to conduct an adequate and unbiased investigation
• Encouraging policy holder not to hire a lawyer
• Making over burdensome documentation demands not required by the policy
• Misinterpreting documents or policy provisions that favor the claimant
• Altering policy coverage without informing or receiving consent of insured
• Unreasonably misinterpreting policy language
• Using inaccurate or incorrect information to diminish, deny or delay payment of a claim
• Intentionally misinterpreting or misconstruing the law to the disadvantage of the insured
• Attempting to shift blame and responsibility of investigation to insured
When an insurance company is found to have acted in bad faith, a court may:
• award interest on the amount of the claim
• assess punitive damages: and or
• assess court costs and attorney’s fees
How a lawyer can help
Resolving insurance disputes and proving bad faith claims can be complex tasks. These matters are best handled by an experienced attorney adept at interpreting insurance policy language, and the applicable insurance statutes and regulations.
If you’re in the midst of an insurance dispute or feel that your insurance company hasn’t acted in good faith, call HKQ Law at (800) 760-1529.