But is it “bad faith,” in a legal sense? Not every state permits a disability claimant to sue an insurer for acting in bad faith. California does, though, and in California it matters.
A disability claimant who succeeds in a bad faith lawsuit under Section 790 of the California Insurance Code may also recover for the collateral damage that happens when the paycheck stops but the disability payments do not come through. When insurers like Standard Insurance Company, delay or deny benefits, people can lose their homes, trash their credit and put their family’s future on hold. Being made whole requires more than just the payment of past due benefits.
Being successful at a claim for bad faith benefit denial or bad faith claims processing is not easy even under California law. At the outset, employer plans are generally governed by the federal statute, ERISA, rather than state law. The provisions of the California Insurance Code are therefore applicable only to private plans.
Secondly, not every denial or delay is evidence of bad faith. A plaintiff must show a pattern of conduct that demonstrates unfair or unreasonable denial or underpayment of legitimate insurance claims. Among the kinds of bad conduct listed in the statute are:
- Misrepresenting policy benefits;
- Failing to complete prompt, fair and equitable settlements of claims once liability has become reasonably clear;
- Attempting to settle for less than the amount a reasonable person would have believed is owed;
- Promising benefits in promotional literature that are not paid;
- Altering an application without the knowledge of the insured and then attempting to settle a claim based on the altered application;
- Failing to pay benefits under one section of a policy in order to pressure a plaintiff to settle based on other sections of the policy;
- Advising a claimant not to obtain the services of an attorney; and
- Misleading a claimant as to statute of limitations.
Even in those states that do not permit a bad faith claim in a disability denial case, there may be a way to sue on facts such as these. Nonetheless, disability denial cases require the assistance of a lawyer who is familiar with state law, in the jurisdiction where the lawsuit is brought.