What if an insurance company doesn't honor the policy
and pay a legitimate claim? An insurance policy is a contract between the company and the
insured. Both parties are bound to the terms of the contract and
must act in good faith. If a legitimate claim is filed, but then
denied, the insurance company is in breach of the contract. The
insured can then file a claim for the damages that should have
been paid and may be able to collect the additional expenses
that arise out of suing the insurance company. If you find
yourself in this situation, contact the Department of Insurance
(or similar) in your state.
What is insurance company good faith? The law imposes on insurance companies the duty to act in good
faith and to deal fairly with the insured person. This means
that when a person files a claim of loss, the insurance company
cannot make up a reason to deny the claim or look for ways to
escape its obligation to pay. The insurance company must fairly
determine the eligibility of the claim for payment.
Another protection to insureds and beneficiaries in interpreting
insurance policies is the rule concerning ambiguities. If there
is a question concerning what is covered under an insurance
policy or what the various terms mean, the courts will interpret
confusing, complicated or ambiguous contract terms against the
insurance company to give the insured person coverage
If the insurance company won't settle within
policy limits and ultimately the case goes to trial with the
result of an award above policy limits, is this bad faith?
First, the law varies
from state to state’ so you should consult an attorney familiar
with the law in your jurisdiction. Generally, insurance carriers
have a duty of good faith and fair dealing when it comes to
defending their insured. The company doesn’t automatically have
to settle within the policy limits. But where there’s a
potential for exposure in excess of the policy limits, the
carrier can’t act unreasonably in not settling within the policy
limits. If they fail to do so and you are hit with a verdict in
excess of the policy limits, the company may be on the hook for
the excess and could be sued by you for acting in bad faith in
handling your claim. If you’re concerned that the insurance
company is not acting in your best interests, hire a lawyer to
review your case.
I read the terms of my policy one way. My
insurance company sees it completely differently. Who determines
who’s right? The Departments of Insurance (or similar) of each state
recognized that confusion may arise over the use of terminology
and clauses used in insurance policies. So when a suit is filed
relating to the meaning, and the resulting obligations, under an
insurance contract, the courts have developed "rules of
construction" for reviewing the policy. Typically, if there is
more than one way to interpret a word, phrase, or clause, the
interpretation that would include coverage is generally used.
And if a word, phrase, or clause, excludes coverage, the most
restrictive application is generally accepted.
I think the offer the insurance company gave me
is really, really low. Is this bad faith? Intentionally offering a settlement far lower than what is
reasonable could be a case for bad faith. Insurance companies
have an obligation to deal with their insured in a reasonable,
fair manner. “Low-balling,” as it is typically referred to, is
simply a form of bad faith.
Can I appeal a claim denial? Yes. Your policy will detail the procedure you must follow
regarding a denial. First, be sure to get the specific reasons
for the denial in writing. Then, review your policy for the
review or appeal process. You typically must follow the appeal
steps as provided in the policy before filing a court action.
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