Bad faith insurance disputes arise when policyholders claim that insurance companies do not act in good faith to honor a claim. Insurance companies have a duty to treat their policyholders fairly and to address claims promptly and reasonably. However, sometimes insurers are accused of delaying payment, denying valid claims or offering less compensation than what is fair. When this happens, it can lead to a bad faith insurance dispute. These disputes can frustrate policyholders who rely on insurance to cover losses or damages. On the other hand, carriers may deny the claim because they are adhering to the policy’s guidelines.
Common defenses used
Regardless of the policyholder’s claim, insurers can defend their actions. The following are five commonly used defenses:
- Reasonable basis for denial: Insurance companies might argue that they had a legitimate reason to deny the claim. They may point to policy exclusions, lack of coverage or insufficient evidence as grounds for their decision.
- Misrepresentation or fraud by the policyholder: Insurers often claim that the policyholder provided false information or engaged in fraudulent activities. They argue that since the policyholder was not truthful, the carrier was right to deny the claim.
- Failure to cooperate: Insurance companies may defend their actions by stating that the policyholder did not cooperate during the claims process. It could include not providing necessary documents or failing to attend required examinations.
- Policy limitations: Insurers may argue that the policy clearly outlines certain limitations and exclusions and that the claim falls within those boundaries. They maintain that they adhere to the terms agreed upon by both parties.
- Pre-existing conditions: In health or disability claims, insurers might deny a claim by stating that the condition existed before the policy was in effect.
Other, rarer circumstances may also arise.
How to resolve a bad faith insurance disputes
When a policyholder files a bad faith insurance dispute, there are several ways to address it. One standard method is litigation, where the policyholder sues the insurance company. This process involves taking the matter to court, where a judge or jury will decide the outcome. Alternatively, the two sides can use arbitration or mediation, which are less formal and often quicker. Arbitration involves a neutral third party who reviews the case and makes a binding decision. Conversely, mediation consists of a mediator who helps both parties reach a mutually agreeable solution.
Insurance defense is a specific area of law
An attorney with a background in insurance defense can help resolve these matters. Each claim involves at least slightly different circumstances, and interpreting the policy to address the claim can be difficult, as different parties may have different understandings. The lawyer can also investigate the incident and gather additional information to better understand the truth. They can also convincingly present their arguments.