What Does Bad Faith by a Life Insurance Company Look Like?
A life insurance policy is a legal contract between the insurer and the policyholder. Both parties are required to uphold their obligations in good faith. Policyholders are expected to pay premiums on time and provide accurate information, while insurers are legally obligated to investigate claims promptly, maintain open communication, and pay the death benefit when the claim is valid.
When an insurer fails to fulfill these responsibilities and engages in practices that unreasonably delay or deny claims, it may be committing bad faith. Below are some of the common signs that suggest an insurance company might be acting in bad faith.
1. Lack of Communication or Transparency
One of the first signs of bad faith is poor communication or a complete lack of transparency. If your insurance company is:
Ignoring your claim or failing to acknowledge receipt of your documents,
Not responding to your inquiries,
Or providing vague responses with repeated claims of being “still under review,”
These may be signs that the insurer is trying to delay your claim or discourage you from pursuing it. Insurance companies are legally obligated to keep you informed and respond to your questions in a timely manner. Failure to do so could be a breach of their duty.
2. Denying a Valid Claim Without a Clear Reason
Another hallmark of bad faith is when the insurer denies a valid claim without providing a clear explanation or offering a vague rationale. Insurance companies are required to explain their denials in writing and justify their decisions with specific reasons.
If the insurer provides a generic denial or misinterprets the policy terms to justify their decision, it’s possible they are engaging in bad faith.
Deceptive or unfounded reasons for denial often exploit the policyholder’s lack of legal knowledge, hoping the claimant will not pursue the matter further.
3. Unreasonable Delay in Paying Out a Valid Claim
Delaying payment on a valid claim is another tactic that insurers use to frustrate beneficiaries. This is done in hopes that the beneficiary will eventually settle for less or accept a smaller payout due to financial strain.
Even after approving a claim, some companies drag their feet in issuing the check, often holding the funds to earn interest or to pressure you into a settlement.
State laws often require insurers to pay the claim within a specific period after receiving all necessary documentation. Unexplained delays may be a violation of these laws and indicative of bad faith.
4. Attempts to Retroactively Cancel or Alter the Policy
One of the most serious forms of bad faith is post-claim underwriting, where an insurer tries to cancel or change the terms of the policy after a claim is filed.
This could involve looking for an error or omission in the policyholder’s application—whether or not it is related to the cause of death.
Post-claim underwriting is illegal in many jurisdictions, and attempts to retroactively deny coverage or alter the terms of the policy may be a clear sign of bad faith.
5. Focusing on Minor Inconsistencies to Justify Denial
Insurance companies sometimes target minor discrepancies—such as a misspelled name, incorrect address, or small error on the application—to cast doubt on the policy’s validity. These tactics are used to avoid paying a legitimate claim.
While insurers have the right to investigate potential fraud, their investigation should be reasonable and based on real evidence. If they use trivial inconsistencies to justify denial, it could be an indication of bad faith.
Why Legal Help is Critical in Bad Faith Life Insurance Cases
Dealing with a bad faith insurance claim is not an easy process, as insurance companies often have in-house attorneys, adjusters, and other legal resources to protect their interests. Therefore, it’s essential to have an experienced life insurance attorney on your side.
An attorney can:
Review your claim denial and assess the insurer’s actions.
Demand documentation and investigate where the insurer may have violated its contractual obligations.
File a lawsuit to recover the death benefits you’re entitled to, and potentially secure additional damages for emotional distress and attorney’s fees.
In many cases, if bad faith is proven, insurers may also face punitive damages intended to discourage such practices in the future.
How to Fight Back Against Bad Faith
If you suspect that your life insurance claim has been wrongfully denied or delayed due to bad faith, there are steps you can take:
Document Everything: Keep detailed records of all communications, including emails, phone calls, and letters exchanged with the insurance company.
Request a Written Explanation: The insurer is required to provide a written explanation for any claim denial. Review this document carefully for any errors or misleading reasons.
Consult a Life Insurance Attorney: Contact an experienced life insurance lawyer who can help you understand your rights, investigate the insurer’s actions, and determine if bad faith occurred.
Consider Legal Action: If the insurer refuses to pay or is engaging in bad faith practices, your attorney can help you file a lawsuit and pursue compensation.
FAQ: Bad Faith Life Insurance Claim Denials
1. What qualifies as bad faith by a life insurance company?
Bad faith includes unjustified claim denials, failure to communicate, unreasonable delays, retroactive cancellations, or efforts to mislead beneficiaries. If the insurer fails to act honestly or fairly, it may be acting in bad faith.
2. Can I sue my life insurance company for bad faith?
Yes. If an insurer wrongfully denies a claim or violates its duties under the policy, you can sue for breach of contract and bad faith. Successful lawsuits can lead to compensation beyond the policy amount, including punitive damages.
3. Is it bad faith if the insurer delays paying a valid claim?
Possibly. If the insurer has no valid reason for the delay and is stalling to pressure you into accepting less, it could be considered bad faith. State laws often require timely payouts.
4. Can an insurer change the terms of a policy after someone dies?
No. Once a valid policy is in place, the insurer cannot retroactively alter or cancel it without violating the law. Attempts to do so can be clear evidence of bad faith.
5. What should I do if I suspect bad faith?
Document every interaction with the insurer and contact a life insurance attorney immediately. An attorney can assess whether bad faith occurred and guide you in pursuing a claim or lawsuit.