Insurance Payout Lawsuits

Insurance payouts occur when insurance companies pay for certain losses suffered by a person the company insures as required by the terms of the covered party’s insurance policy. Insurance payouts often occur in the context of claims for personal injury, such as those resulting from auto accidents.

Given that there are over 5 million car accidents in the U.S. every year, auto insurance may generate the most insurance payouts of any class of insurance. Most people have automobile insurance. Indeed, most states require a person to have it if they want to register their motor vehicle.

In most cases, the insurance company specifies the limit on the amount it is willing to cover, which is stated in an insurance contract as the policy limits. The policy limit is based on the number of payments for the insurance the person makes each month, i.e., their “premiums,” and other factors that insurance companies take into account when issuing a policy and setting the price for it.

Many kinds of insurance cover many personal, professional, and business risks. Any insurance contract can result in a payout if the event that insurance covers should occur. For example, doctors, lawyers, engineers, architects, and other professionals must have malpractice insurance to cover the risk that a patient or client may be dissatisfied with their work and decide to sue them for professional malpractice.

Hundreds of millions of Americans have insurance to cover the costs of their health care, pharmaceuticals, dental care, and vision care. And the insurance companies from which they purchase insurance make thousands of payouts daily in connection with these insurance policies. They pay payouts to doctors, hospitals, dentists, pharmacies, and providers of lab tests, for example, for the services they have rendered to the people insured by their policies.

An insurance adjuster is a person who might play a role in a person’s claim for a payout. An insurance adjuster investigates and settles insurance claims. The adjuster investigates the loss and the policy at issue and determines whether the claim should be paid and, if so, in what amount. An insurance company may hire independent adjusters from independent adjusting agencies. Or it may have its own in-house staff of adjusters.

Consumers can also hire public insurance adjusters to help them with their claims. Their state’s department of insurance usually licenses them. Public insurance adjusters are independent of insurance companies. They would charge a consumer a fee for their services, such as up to 10% of any final payout from the insurer they obtain for their client.

What Are Some Legal Issues to Consider with Insurance Payouts?

Insurance claims and payouts can be the source of several legal conflicts. Some problems to watch out for when dealing with insurance payouts include:

• Breach of Contract: A breach of contract can happen when the insurance company refuses to make a payout that it is legally obligated to pay per one of the insurance policies it has issued;
• Tax Issues: Tax issues may arise when payouts are made. It can make a difference if payouts are made all at once in a lump sum or payments over time. The type of damage or injury that the payout covers might have tax implications;
• Insurance Fraud: Insurance fraud is an illegal act by either the buyer or seller of an insurance policy. Insurance fraud on the part of an insurer includes selling policies of companies that are non-existent, the failure of an agent or other intermediary to submit premiums to the insurance company, causing coverage to be lost, and churning policies to create more commissions.
  • A company might fail to disclose policy limitations and exclusions to a person before they purchase a policy to get them to buy a policy that does not offer the protection the person wants;
  • When a person makes a claim, a company may try to avoid paying a claim by asserting that the policy had been canceled when in fact, it had not been canceled;
  • People who are insured can commit fraud as well. A person might have a legitimate claim but try to exaggerate the value of their loss to get more money as a payout than the amount to which they are entitled;
  • If personal injury is an issue in a claim, the claimant may falsify their medical records to exaggerate the extent of their injuries so they get a higher payout;
  • People may work in concert with unethical medical professionals to inflate the value of their claims or even phony up claims that do not exist at all;
  • Some fraudsters work in conspiracies to stage car accidents or cause car accidents intentionally with innocent victims to phony up claims for damage and injury. Of course, many murders have been committed to collect the payout from life insurance policies;
  • Fraudsters also target health insurance providers for fraudulent claims. Some steal the identifying information of insured people. Others target government insurance programs, such as Medicare and Medicaid.

For more than 12 years in the 1950s and 1960s, the most famous fictional insurance investigator, Johnny Dollar, the star of the radio series “Yours Truly, Johnny Dollar,” conducted fictional investigations of many insurance frauds. Each episode started with an unusual claim from an insured for an insurance payout. The cases involved suspicious deaths, a missing person, or other unusual circumstances that led an insurance adjuster to suspect fraud and call on Johnny for an investigation;

What Is Insurance Bad Faith?

Insurance companies act in bad faith when they refuse to process and pay a legitimate claim made by a person they insure to avoid paying a legitimate claim. Some examples of bad faith are as follows:

• Misrepresentation of Policy Language: The company might misrepresent the language in the policy to justify its denial of a claim;
• Unreasonable Requests to Prove a Claim: A company might make unreasonable demands on the insured person to prove a covered loss;
• Taking Too Long to Process a Claim: An insurance company is also guilty of bad faith when it refuses to process a policyholder’s claim within a reasonable time.
  • If an insurer fails to reply to a policyholder’s claim quickly, that act of negligence is considered bad faith, whether or not it was intentional;
• Ignoring Evidence that Supports the Claim: Looking only for evidence that supports the insurance company’s denial of a claim and ignoring evidence that supports the policyholder’s basis for making a claim is considered bad faith;
• Failure to Explain Denial of a Claim: Insurance companies must clearly explain why they refuse to cover a claim in whole or part to avoid acting in bad faith.

An insurance company can act in bad faith in a multitude of ways. If a policyholder suspects bad faith, they consult a personal injury lawyer because they may have a claim for insurance bad faith.

Insurance bad faith can arise in connection to any insurance policy, e.g., homeowners’ insurance, health insurance, auto insurance, and life insurance. A difference in opinion between the policyholder and the adjuster over an adjuster’s valuation of a loss amount does not constitute bad faith unless the adjuster refuses to show that the facts of the case support their conclusion. Of course, a simple mistake does not constitute bad faith, either.

Most states now have laws that specifically address bad faith practices. These are also referred to as “unfair claims practices acts.” They are designed to protect consumers against malicious and unfair conduct by insurance companies settling claims and making payouts. California law models the bad faith law in many other states.

Some laws require an insurance company that has acted in bad faith to pay basic money damages to compensate the victim for the separate injury of having a claim denied, above and beyond the amount owed under the original claim. This compensation should cover any out-of-pocket expenses the insured person had to pay to address their damage, as well as missed work and attorney’s fees.

If an insurance company acts in a particularly outrageous way, a jury may award punitive damages to the policyholder to punish the insurance company and discourage it from acting in bad faith again. If evidence shows that the insurance company made a simple mistake and has not acted in bad faith, the proper remedy is to order the company to pay the claim.

Do I Need a Lawyer for Help with Insurance Payout Issues?

Insurance payouts can vary from claim to claim. Also, laws regarding insurance and claim payouts can vary by state. You may wish to consult an insurance lawyer if you need help with any insurance or personal injury claim.

Your attorney can advise you on the validity of your claim and how best to negotiate a settlement with your insurance company. Often, having a lawyer contact the insurance company on your behalf can lead to the speedy settlement of a claim. Your lawyer can recognize when an insurance company acts in bad faith, giving you grounds for a lawsuit.