Unfair Insurance Claim Practices Laws

An unfair insurance claim practice arises when an insurance provider does not deal with a policyholder’s claim in good faith. This involves a breach of the insurer’s duty to act honestly, fairly, and promptly when addressing claims. These unethical practices can be in violation of regulations and laws, leading to severe penalties for insurance companies and potentially giving rise to a lawsuit against your insurance provider.

What Are Some Examples of Unfair Insurance Claim Practices?

Below, we will cover some examples of unfair insurance claims practices.

Denying a Claim Without a Valid Reason

Insurance companies have the duty to honor the terms of the policy they have with the insured. However, there are instances where they might deny a claim without a valid reason.

Example: A homeowner’s insurance policy may cover storm damage. A storm might damage the policyholder’s roof, and the claim might be denied even when there’s no specific exclusion related to the damage. In that case, this can be seen as a denial without proper justification.

Delayed Response or Payment

Insurance companies owe their policyholders timely responses and payments. Delays can lead to added financial burdens.

If a policyholder has to take out a loan or use credit cards to cover expenses while waiting for an insurance payout, they may incur interest on those amounts. Over time, especially with high-interest rates, this can significantly increase the total amount owed.

Policyholders might be waiting for insurance money to pay off specific bills or debts. A delay in receiving the insurance payout can result in late fees or penalties on those unpaid amounts.

In the case of homeowners’ insurance, if a home becomes uninhabitable due to damage, the homeowner might need to seek temporary housing. Delays in processing or paying the claim can lead to extended stays in hotels or rentals, which can be expensive.

If the insurance claim pertains to a personal injury or an incident that has prevented the individual from working, delays in the claim might mean prolonged periods without income, leading to further financial strain.

Example: A car accident victim submits a claim for medical bills. Despite the policy clearly covering such costs, the insurance company takes an unreasonable amount of time to process the payment. This causes the victim to accrue late fees or interest.

Misrepresentation of Policy Language

Some insurance companies might exploit or stretch the ambiguities in policy wording to avoid claims.

Some policies cover only “accidental” occurrences. But what constitutes an accident? If someone drops their camera, is it an accident or carelessness? Ambiguities around such terms might lead insurers to deny claims.

Example: A travel insurance policy may have a vague clause about “unexpected events.” A policyholder may have to cancel a trip due to a family emergency, and the company denies the claim, citing that the event was “expected.” In this case, this can be a misrepresentation of the policy’s intent.

Lowball Offers

Insurance companies, like any other business, aim to maximize profits. One way to do this is by minimizing the amount they pay out in claims. There are many ethical adjusters and insurance companies out there. However, the incentive structure in the industry can sometimes encourage the issuance of lowball offers.

Why Lowball Offers Are Made

• Quick Settlements: Many claimants are unfamiliar with the claims process and might not be aware of the full value of their claim. A low offer might seem reasonable to someone without this knowledge, especially if they’re under financial or emotional stress and eager for a quick resolution.
• Testing the Waters: The initial low offer can be a tactic to gauge how informed and determined a claimant is. If a policyholder accepts the low offer without negotiation, the insurance company benefits.
• Minimizing Payouts: By consistently offering amounts that are below the actual value of claims, insurance companies can save significant amounts of money over time.
• Claimant’s Lack of Representation: Insurance adjusters know that individuals without legal representation might not fully understand the worth of their claim or might feel less empowered to challenge the insurer’s offer.

Implications for Claimants

Accepting a lowball offer can leave claimants unable to fully cover their expenses or losses, whether it’s medical bills, repairs, or other costs associated with the claim.

Once a settlement is accepted, claimants usually give up their right to pursue any further claims or legal actions related to the incident. If they later realize the amount is insufficient, they typically can’t go back and ask for more.

Realizing after the fact that they settled for less than they deserved can be emotionally distressing for claimants.

Failure to Conduct a Proper Investigation

To ascertain the validity and value of a claim, insurance companies should conduct thorough investigations. Failing to do so can lead to wrongful decisions.

The investigation helps the insurance company to confirm that the claim is genuine and not fraudulent. It verifies the circumstances of the claim and ensures that it falls within the policy’s coverage.

On the flip side, a lack of investigation can also result in the insurance company paying out more than is warranted, either due to fraud or simple overestimation of the damages.

Example: If a person claims injury after a slip and fall at a store, the insurance company should examine the scene, talk to witnesses, and review medical reports. Without such an investigation, they may deny the claim, stating the fall was the person’s fault.

Arbitration Awards

Arbitration is a form of ADR, which means it provides an alternative to traditional court litigation. Parties opt for arbitration to save time, reduce costs, and maintain confidentiality.

Most arbitration is binding, meaning that the parties agree to abide by the arbitrator’s decision. Non-binding arbitration, on the other hand, allows parties to reject the arbitrator’s decision and proceed to court if they’re dissatisfied.

Arbitration can also be significantly faster than court litigation, leading to quicker resolutions.
When insurance companies don’t honor these awards, it undermines the entire arbitration process.

Example: A policyholder disputes the amount of damage to their property. They go through the arbitration process, and the arbitrator decides in favor of the policyholder, setting a compensation amount. If the insurance company refuses to pay this amount, they are ignoring the arbitration award.

Acted in Bad Faith

Bad faith claims involve the insurance company’s intentional dishonesty or unfair claims settlement with a policyholder.

Example: An insurance company might discover information that would compel them to honor a claim, like a previous inspection report. If they hide this report and deny the claim, they are acting in bad faith.

Each of these practices can deeply impact the lives and finances of policyholders. When faced with such situations, it’s essential to be well-informed and to consider seeking legal advice to ensure one’s rights are upheld.

Should I Consult a Lawyer?

Absolutely. If you believe your insurance company has engaged in unfair claim practices or acted in bad faith, it’s crucial to seek legal advice. An attorney can guide you through the complexities of insurance law, advise on potential arbitration awards, and, if necessary, file a lawsuit against your insurance provider. They can assess the strength of your case, guide you on the best course of action, and ensure your rights are protected.

Don’t try to handle these complexities alone. Reach out to an experienced insurance lawyer through LegalMatch’s attorney-client matching system to get the justice you deserve.