If your insurance is provided by your employer (except in specific circumstances), your insurance is covered by the Employee Retirement Income Security Act (ERISA). Under ERISA, you must first exhaust your insurance company’s appeal process before you can file a lawsuit. Even if you do file a lawsuit, you cannot receive damages for pain and suffering and you cannot file for punitive damages; you can only recover money you put out to cover denied medical treatment.
If you have purchased your own disability insurance, it is not covered by ERISA and you are usually able to file a lawsuit as soon as your claim is denied, although you should check your insurance contract to be sure of this.
There are legitimate reasons for claims being denied. These can include filing a claim for a condition or treatment that is not covered, lying about a pre-existing condition or lying about the extent of the condition that resulted in the claim being filed. That said, there are numerous illegitimate excuses given for denying claims that should have been allowed.
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Any activity in which the insurance company knowingly, recklessly, willfully or frivolously denies, or delays a legitimate claim could be considered acting in bad faith and/or breaching an insurance contract.
Unfortunately, as too many policyholders find out, simply paying into an insurance policy does not guarantee that coverage for long-term disability is available when needed. Some insurance companies unreasonably deny or delay awarding claims in an attempt to boost company profits.