Life insurance companies are obligated to investigate claims promptly, communicate clearly with beneficiaries, and make payment decisions based on facts and policy terms—not profit motives. When they fail to do so, the following actions may constitute bad faith:
Denying a valid claim without conducting a reasonable investigation
Distorting policy exclusions to avoid paying
Delaying payment or decision-making without justification
Claiming a policy lapsed without issuing required notices
Using the contestability period to search for non-material errors years later
These tactics can cause severe financial and emotional distress—especially when families are depending on the payout for funeral costs, mortgage payments, or everyday expenses. If you have Virginia life insurance claim issues call us.
Common Bad Faith Tactics in Life Insurance Denials
1. Manipulating Policy Language
Life insurance policies are filled with dense legal terms, exclusions, and clauses. When insurers reinterpret these provisions—especially in ways that contradict what was explained during the sale—they may be acting in bad faith. Courts have repeatedly held that ambiguous policy language must be interpreted in favor of the policyholder.
2. Unreasonable Delays in Processing Claims
Even during the contestability period, insurers must act diligently. Basic claim documents—such as the death certificate and policy copy—can be obtained quickly. If the company delays for weeks or months without explanation, or demands unnecessary paperwork, this may signal bad faith delay tactics.
3. Retroactive Policy Cancellations After Death
Insurers sometimes scour an old application for trivial or unrelated mistakes after the policy becomes incontestable (typically after two years). If they cancel the policy based on immaterial omissions—such as forgetting to list a short-term prescription—just to avoid paying the benefit, this could constitute bad faith rescission.
4. Overreaching on Exclusions
Some denials hinge on misapplied exclusions. For example, an insurer might classify a death as suicide without clear evidence, or apply a “hazardous activity” exclusion to a situation that doesn’t qualify. These denials are not only misleading—they may be grounds for legal action.
5. Lapse-Based Denials Without Proper Notice
If the insurer alleges the policy lapsed due to nonpayment, it must comply with strict notice requirements. Many states require written notice and a grace period (e.g., 30–60 days). If the insured died during that grace window, or if notice wasn’t properly sent, the policy may still be valid—and denial may be considered an act of bad faith.
What Happens If You Prove Bad Faith?
When a life insurance company is found to have acted in bad faith, the consequences can be significant. In addition to the unpaid death benefit, the insurer may be ordered to pay:
Interest on delayed payments
Attorney’s fees and court costs
Damages for emotional distress
Punitive damages, in cases of egregious misconduct
These additional penalties are designed to punish the insurer and deter similar behavior in the future.
How a Life Insurance Attorney Can Help With a Bad Faith Claim
Insurance companies rely on the assumption that beneficiaries won’t fight back. A skilled life insurance attorney levels the playing field by:
Analyzing the full policy and denial letter
Investigating insurer conduct for procedural violations
Gathering evidence to refute the insurer’s reasoning
Asserting your rights under state or federal bad faith laws
Negotiating a resolution—or pursuing litigation if needed
At our firm, we focus exclusively on life insurance denials and have recovered millions for clients whose claims were wrongly delayed or denied. In many cases, the involvement of experienced counsel is enough to pressure insurers into reversing a bad decision.