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Bad Faith Insurance

Insurance companies are required to pay claims with good faith—willingly, promptly and properly and it is illegal to practice bad faith insurance by willingly discounting, delaying or denying payment of claims. The law states that insurance companies are bound by a "covenant of good faith and fair dealing" in treating their policyholders. If an insurer breaches this covenant, it is acting in bad faith and can be sued for actual and consequential damages as well as punitive damages.

Bad Faith Insurance: What are Their Tactics?

bad faith insurance You buy an insurance policy and assume that you will be compensated by the insurance company if you suffer a loss. A contract is signed between you and an insurance company—your insurance policy—which sets out terms and conditions specifying the amount of coverage or compensation payable to you should you claim a loss or injury. Depending upon your contract, it may cover you against a personal injury or damage to your vehicle or a catastrophic event such as Hurricane Katrina.

Sounds straightforward—you buy insurance and assume that you will be compensated by the insurance company if you suffer a loss. Unfortunately, this is not always the case. Some insurers will deny your legitimate claim even if they don't have a valid reason to do so. When an insurance company breaches your trust, you feel betrayed. The company is then acting in bad faith. Generally, these insurers employ tactics that will try to wear you down; they count on you not having any recourse. An insurer may attempt to refuse to pay all or part of your medical bills or delay investigation of your claim for no reason except to hope that you will go away.

Other tactics include the following:
  • A 24-month limitation on benefits for mental and nervous conditions
  • Knowingly applying the wrong legal definition of disability when denying claims
  • Purposely targeting high-cost claims for denials
  • Misuse of claimants' medical records
It is hard to believe that bad faith insurers can practice bad faith--until it happens to you. Insurance complaints have increased drastically over the last several years but there is also a positive side to this: public attention has demanded that insurance companies are now held accountable. Thanks in part to the Freedom of Information Act and the Internet, insurers can no longer get away with bad faith insurance practices. More lawsuits against crooked insurers are being fought and won today than ever before.

What Can You Do?

Write to your State Department of Insurance. In the U.S., each state regulates insurance companies and every state has its own Department of Insurance website. Once you know the website of your state regulatory agency Department of Insurance, find the right representative and submit a complaint in writing to make sure that your claim is on record.

Keep a record of everything that transpires between you and your insurer, including phone calls. Keep a paper trail. And request copies of your medical records - it is your right.

You can go to small claims court but each state has its own limit - find out first. If your claim is too high for small claims court, you may want to seek legal help.

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