Insurance companies may engage in four main types of unfair claims settlement practices. These include misrepresentation or alteration, unreasonable requirements, timeliness issues, and lack of due diligence. What is an unfair claims practice? Unfair claims practices prevent companies from paying out full settlement amounts, ultimately contributing to their bottom dollar.
Understanding each of these classifications and the signs of bad faith insurance will help you identify this behavior. You may then use this as the basis for a bad faith insurance claim.
What Are Unfair Claims Settlement Practices?
Unfair claims settlement practices involve insurance companies’ attempts at minimizing, denying, or avoiding paying a settlement through various strategies. These strategies are often illegal and can get insurers in trouble if people discover that they’re engaging in these practices.
To help prevent unfair claims practices, the National Association of Insurance Commissioners (NAIC) has implemented the Unfair Claims Settlement Practices Act (UCSPA). However, the federal government doesn’t enforce this act, and it may not apply to certain states.
If you discover that an insurance company has engaged in unfair claims practices, you may hold the insurer accountable using the UCSPA, depending on the state where the insurer practices.
What Are 4 Classifications of Unfair Claims Settlement Practices?
What counts as bad faith insurance may differ depending on the state, but there are four primary categories of unfair claim practices in which an insurer may engage. These include:
- Misrepresentation or alteration
- A lack of due diligence
- Timeliness issues
- Unreasonable requirements
The following is a breakdown of each of these categories.
Misrepresentation or Alteration
There are a few different instances of misrepresentation or alteration that can take place when negotiating claims with insurers.
For example, an insurer may misrepresent an insurance policy or the facts of a claim. Insurers may also settle claims for far lower amounts than they’re actually worth, despite advertising differently. Other cases may involve insurance companies making changes to insurance policies without notifying the policyholder of these changes, such as reducing policy limits.
A Lack of Due Diligence
Insurers may neglect to perform due diligence when handling insurance claims. For instance, they may refuse to pay a settlement amount for a valid claim without properly investigating it. They may also neglect to implement a policy to help facilitate investigations, giving them an invalid reason to deny a claim.
Timeliness Issues
Some instances of unfair claims settlement practice may involve issues with timeliness on the part of insurers.
Examples of specific timeliness issues could involve:
- Failure to provide a timely explanation for the denial of coverage or a low settlement offer
- Failure to communicate in a timely manner after the claimant initially files an insurance claim
- Failure to reach a fair settlement in a timely fashion despite the claimant submitting a valid claim with clear liability
- Failure to promptly either approve or deny coverage following a thorough investigation into a claim
- Failure to provide claimants with the appropriate forms in time
Unreasonable Requirements
Another form of unfair claims practice involves insurers setting unreasonable requirements for coverage. One example of this is offering a minuscule settlement amount, requiring the claimant to file a suit against the insurer to recover the full settlement. This may lead to a lower final settlement than what the claimant should have received.
Once claimants submit all necessary information in proof-of-loss forms, insurers could unreasonably request additional information that the company doesn’t need. The result of this would be a delay in payouts or claims investigations, giving the insurer more time to avoid paying a settlement.
Identifying When a Claim Is Treated Unfairly
If you are a victim of bad faith insurance, there are signs to look for that can indicate when an insurer is engaging in unfair claims practices.
The following are signs to watch for if you believe an insurance company is treating your claim unfairly:
Lowball Settlement Offers
One of the biggest signs of unfair claims settlement practices is a lowball settlement offer. This occurs when an insurer makes an offer that’s significantly lower than the true value of a claim. While it may be legal for an insurer to make a low initial offer after conducting an investigation into a claim, it might be illegal if the insurer makes a low offer without properly conducting an investigation.
Insurers may make these offers with the hope that the claimant won’t know the total potential settlement amount and will accept it blindly. In turn, the insurer benefits from making a lower payout and saving money.
These low offers are why it’s essential for you to avoid accepting the initial offer in most cases when negotiating claims with insurers. Hiring a bad faith insurance lawyer may help you determine if unfair claims practices took place and negotiate a full settlement with insurers.
Questionable Denials
Whenever an insurer denies a claim, the company must provide the claimant with a valid written reason for the denial. If an insurer denies your claim and doesn’t provide you with a sound or clear reason, this denial could be indicative of bad faith insurance.
Unreasonable Delays
Insurance companies typically have a limited amount of time to respond to insurance claims. For example, insurance companies in Nevada have 20 days to investigate a claim and 30 days to make a decision on a claim once the claimant has filed it.
If an insurer delays its response to or payment of a claim without a valid explanation, the insurer may be attempting to encourage you to forget about and abandon your claim. If this occurs, continue following up with the insurer. Otherwise, you may want to work with a bad faith insurance lawyer to drive action in your case.
Inadequate Investigations
Insurance companies may act in bad faith by failing to conduct thorough investigations or failing to conduct an investigation entirely before making a decision about a claim.
Insurers normally investigate claims to determine whether they’re valid and identify the liable parties involved. Through an investigation, insurers can also more accurately calculate the value of a claim based on the extent of injuries and other factors. However, insurers may attempt to avoid spending money and time on a proper investigation and deny or minimize a claim without having conducted a proper investigation.
Can You Reopen a Closed Insurance Claim?
When negotiating with insurers, you might wonder, “Can a closed insurance claim be reopened?” In most cases, you will be unable to reopen a closed insurance claim.
Often, claimants want to settle a case as soon as possible and recover a settlement quickly to cover medical bills and other expenses. As a result, they may be willing to accept an insurer’s initial offer during the claims process. The problem is that once you accept this claim, even if it’s far lower than what your calculated losses are, you’ll normally be unable to reopen your case and pursue a larger settlement.
The risk of permanently closing an insurance case makes it crucial to avoid accepting a settlement offer unless you’re certain the offer covers the damages involved in your case. An experienced bad faith insurance lawyer can help determine how much your case is truly worth and ensure you don’t close your case prematurely by accepting an unfair offer.
Valid Reasons for a Claim Denial
While insurance companies may engage in bad faith and give invalid reasons for denying a claim, there are some situations when insurers may rightfully deny a claim. In any case, insurers should provide you with a detailed explanation and reason for denial whenever they deny a claim.
Some reasons for a claim denial include:
The Claimant Was at Fault
Sometimes, insurers may deny claims if an investigation determines that the claimant was partially or entirely at fault for an incident. For example, a claimant may have sped or otherwise engaged in illegal activity at the time of a car accident, making him or her liable for the accident and leading the insurer to deny the claim.
The Claimant Can’t Prove That an Injury Resulted from the Accident
Insurers may deny a claim if there isn’t enough evidence to show that an injury and damages resulted from the accident that led to the claim. For example, the claimant may have neglected to seek medical care shortly after the accident, or a doctor may not have made a formal diagnosis upon completing a medical evaluation. In these instances, the insurer might argue that the injury isn’t serious enough or didn’t result from the accident, warranting a denial.
Liability Is Unclear
Many accidents involve a clearly liable party and a victim, but this isn’t always the case. Some accidents may lead to disputes between parties over liability, leading to the failure to come to an agreement over financial responsibility.
How to Prove Bad Faith
If you believe an insurance company acted in bad faith and engaged in unfair claims settlement practices, you may be able to build a case against the responsible insurer and file a lawsuit in response.
It’s often challenging to file a bad faith lawsuit against insurers and build a strong case, but you may increase your chances of getting the compensation in a case with the right approach.
To help you prove bad faith, you can take these steps as you build your case against insurance companies for unfair claims settlement practices:
Understand the Terms of Your Insurance Policy
The first step to take when proving bad faith insurance is to gain a deep understanding of your policy’s terms. Know what kind of coverage your policy includes and look over all relevant details to determine whether the insurer is in violation of your policy.
One item to look at is the date of the contract, which will help confirm that you filed your claim while the policy was in effect.
It’s in your best interest to review your insurance policy with an attorney before filing a claim, which will help make sure your claim is valid before filing with the insurer.
Collect Evidence to Support Your Case
The next step you’ll need to take is to collect sufficient evidence to help prove that the insurer engaged in unfair claims settlement practices. You should collect several pieces of evidence, including your policy, evidence supporting your claim, and any correspondence between you and your insurer and individual adjusters.
In addition, you should keep track of when you communicated with insurers and adjusters via phone, email, or meetings.
Consult a Bad Faith Insurance Lawyer
With a better understanding of your policy and the evidence collected, consult a lawyer experienced with bad faith insurance. The right attorney will meet with you to discuss a bad faith insurance lawsuit and review the facts of your case. Based on this assessment, he or she can decide whether to represent you when building a case against insurers.
Having a good attorney by your side may significantly increase your chances of succeeding with a bad faith insurance case. He or she will have ample knowledge about bad faith insurance and unfair claims settlement practices. If the attorney decides to handle your case, he or she will be able to help you learn how to prepare for an insurance bad faith claim, collect and organize evidence, and build a strong argument proving that bad faith insurance practices took place.
If the attorney cannot reach an agreement during negotiations with a bad faith insurance claim, he or she can represent you in court.
Have a Supervisor Review the Claim
Once you’ve spoken with an attorney and he or she has agreed to represent you, you may then initiate the bad faith insurance claim against the liable insurance company.
The process would begin by reaching out to the insurer with your attorney and requesting a reason for the insurance company’s denial or delay of your claim. If the insurance company declines to review your claim or provide a valid explanation, you may then request to speak with a supervisor to review the case.
In some cases, the supervisor may refuse to review the claim, in which case you may request a review from the insurance regulatory agency in your state. While the agency reviews the case, the insurance company may decide to provide you with an explanation or change its decision regarding your claim. The reason for this might be to avoid additional complications that might compromise the insurer.
File a Complaint With the State’s Department of Insurance
If the supervisor doesn’t help reverse the denial or progress the claim, you may proceed to file a complaint with the Department of Insurance. This complaint will initiate the bad faith insurance claims process and potentially lead to a lawsuit against the insurer responsible for unfair claims settlement.
You will be able to file the complaint if the insurer fails to review your claim in time. At this point, you should gather as much evidence to show that you attempted to settle your claim and requested the review of a supervisor. The Department of Insurance will then help negotiate the bad faith insurance claim with the liable insurer, attempting to reach a settlement without taking the case to court.
After filing a complaint with the state, a regulator may determine that the insurer was in violation of the law through bad faith insurance practices. If this is the case, the regulator may issue a punishment. This punishment could entail revoking or suspending the insurance company’s license, issuing a cease-and-desist order, or imposing a specific financial penalty.
Start a Bad Faith Insurance Lawsuit
While many bad faith insurance cases tend to settle before ever going to court, you and your attorney may need to file a lawsuit and begin the trial process if you’re unable to reach a settlement after filing a complaint. In this lawsuit, you may seek compensation for the damages involved in the case, along with those resulting from the unfair claim’s settlement practices.
If an insurer denies your claim, makes a low settlement offer, or fails to settle in a timely manner, the insurer may be engaging in unfair claims settlement practices, potentially warranting a bad faith insurance claim. By gathering sufficient evidence and taking the proper steps, you may be able to recover compensation by proving how the company was in violation of the law, whether through misrepresentation or alteration, unreasonable requirements, timeliness issues, or lack of due diligence.
