What Is Insurance Bad Faith?

Man and woman sit at a table going over documents using a laptop and a tablet

You may have heard of insurance bad faith in the past, but are you completely clear on what that means? Read on to find out.

How Insurance Bad Faith Occurs

Essentially, bad faith insurance occurs when an insurance provider attempts to retract its obligations to its customers. There are two main ways this can happen:

  • By refusing to provide benefits for a policyholder’s valid claim, or
  • Failing to investigate and process a policyholder’s claim within a reasonable amount of time.

Sometimes insurance companies try to misrepresent a policy contract’s language when describing it to a policyholder in order to avoid paying a claim. When this happens, the insurance company is acting in bad faith, which is against the law.

Another way insurance companies act in bad faith is by failing to reveal policy limitations and exclusions to policyholders prior to purchasing a policy or forcing the policyholder to complete unreasonable demands to prove that a loss covered under the policy occurred.

Types of Insurance Policies That Bad Faith Can impact

Any type of insurance policy can be impacted by bad faith, including:

  • Homeowners’ insurance
  • Health insurance
  • Auto insurance
  • Life insurance
  • Any contract

Mistakes And Differing Opinions Are Not Bad Faith

Everyone makes mistakes—including insurance adjusters. Errors don’t constitute bad faith.

Additionally, suppose you and the insurance adjuster have a difference of opinion regarding the loss amount. In that case, it is not considered bad faith unless the adjuster will not provide you with adequate support to back up their argument.

If the adjuster only conducts research to bolster the insurance company’s basis for denying a claim and disregards evidence that supports your claim, this constitutes bad faith.

If an insurance provider does not address your claim within a reasonable amount of time, this is considered bad faith. When this happens, it doesn’t matter whether the insurer was negligent willfully or not; it is deemed to be bad faith regardless.

Providers can avoid acting in bad faith by explaining the reasons for refusing coverage.

Laws Regarding Unfair Claims Practices

The state of Colorado has specific laws that prevent insurance companies from acting in bad faith. Title 10. Insurance § 10-3-1104 requires the following:

  • Insurance providers must “adopt and implement reasonable standards for the prompt investigation of claims arising from health coverage plans;
  • Promptly provide a reasonable explanation of the basis in the health coverage plan concerning the facts or applicable law for denial of a claim or the offer of a compromise settlement; and
  • Refrain from denying a claim without conducting a reasonable investigation based upon all available information.”

What To Do If This Happens To You

If you have reason to believe that your insurance provider is acting in bad faith, first things first: remain calm.

It can be maddening to think that your insurance provider would act in ways that would harm you, but it’s important not to jump to conclusions.

First, speak with the adjuster’s supervisor, and make sure you have everything you need ready to go when you have that conversation. Let them know that you’ve complied with the adjuster’s wishes, provided all necessary information several times—and still, you have had issues.

Be sure to provide specific instances regarding how the adjuster has behaved and have dates and times handy, if possible.

If the insurance company refuses to budge, it’s in your best interest to hire a skilled insurance bad faith attorney to help you fight the battle. Having experienced legal representation on your side can make all the difference in the outcome of your claim.

Insurance companies know that attorneys are well aware of state and federal laws, so they are less likely to try shady tactics when you have a lawyer fighting for you. Don’t hesitate to contact our office right away with any questions you may have.

Contact our team at today to discuss the details of your case.

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