People embrace life insurance for many reasons. For some it’s the constant worry about their family’s wellbeing, for others it’s the many Go Fund Me’s meant to cover funeral costs, and others for the shock on that family’s face when they lost a breadwinner they can’t get rid of.
Unlike vehicle or homeowners insurance, life insurance represents an insured’s noble desire to protect their loved ones’ long after they are gone. Few things could be more honorable.
By signing this contract, you put the future and wellbeing of your loved ones in the hands of an insurance company. You hope that in the case something happens, they will treat your beneficiaries with dignity and respect and stay true to their words. That’s insurance, at least, from an insured’s point of view.
Life Insurance From The Insurers Point Of View
Most life insurance adverts make insurance seem like charity. It’s not. Insurance is and will always remain business.
Insurance companies could go around accepting all claims and letting beneficiaries live happily ever after. Or, they could do everything in their power to reduce their claims and payouts and become filthy rich while at it.
They chose the latter.
Hence, it will always be in the best interest of an insurance company to increase the number of premiums while subsequently reducing claims and payouts. That’s insurance, at least from the insurer’s point of view.
What Is Insurance Bad Faith
To moderate the natural inclination insurance companies have to treat the insured unfairly; local, state, and federal governments have developed legislation for insurers to abide by over the years.
One popular one is the ERISA (Employee Retirement Income Security Act). Deep down in the fine print of most life insurance policies is another principle called the Good Faith and Fair Dealing act.
The Good Faith and Fair Dealing act means that insurers have a duty to treat the insured with dignity, fairness, and respect.
Any and all action that goes against this implied principle of Good Faith encompasses Bad faith.
Common Cases Of Bad Faith From Life Insurers
Legislation like ERISA has done little in the way of reducing the tendencies of insurance companies preying on innocent and sometimes grieving beneficiaries.
Unknown to many beneficiaries, an insurance company paying out the agreed-upon benefit is the bare minimum.
Think about it, what good does it do if the insurance company pays the agreed-upon amount but after ten years of waiting Or only agrees to pay after you’ve begged, scrapped for leftovers, and developed hypertension from the stress?
This is where Bad Faith in insurance comes in.
Of all the tricks in an insurer’s bag, cluelessness on the part of the insured is probably the biggest. Most beneficiaries get wronged without even knowing it as take the insurer’s finality as the law of the land.
Apart from cluelessness, other cases and causes of bad faith include:
1. Unreasonable Reliance On Policy Exclusions
Policy exclusions are an insurer’s best friend. These are clauses that result in non-coverage once an insurer invokes them. Subsequently, most insurers deny life insurance claims because of exclusions.
For example, you take your family to Aspen for a week of skiing, an accident happens, and the insurance company terms it a dangerous activity.
The most common exclusions include dangerous activity or suicide. The issue with some of these policy exclusions is how the insurers word them in the policy.
Insurers often drown these exclusions in ambiguity to encompass as many scenarios as possible to unfairly deny the insurance claim.
2. Immoderate Delay In Paying The Claim
The average life insurance payout takes about 30 – 60 days. The insurance company is entitled to an investigation or request for documentation that may delay the payout for some time, especially for an insured that passed within two years of taking the coverage.
In some cases, however, the insurer may choose to delay the payout without proper reason, especially for policies that are older than two years old. In such a case, the insured may be acting against their good faith, and it is in your best interest to contact a lawyer as soon as possible.
Always remember that justice delayed is justice denied, and there is more to delays than meets the eye. Without mentioning inflation, a delay in payment could unnecessarily put you on the path to predatory lending or cost you an investment opportunity.
3. Inappropriate Lapse Of The Policy
Bad faith from insurers comes in many shapes and forms, and an inappropriate lapse of the policy is probably the worst.
Life Insurance, for most of the past, is based on a straightforward principle. You pay regular premiums for some time or until your demise, after which the insurer reimburses the beneficiaries of said policy.
However, insurers can still find loopholes to deny an insurance claim in this principle. Take, for example, an insured who pays their premiums in full for several years but becomes incapacitated towards the tail end of their policy and fails to pay some premiums.
On the other hand, another insured can pay for a premium religiously until they are laid off for a few months then resume the payment.
Albeit unfairly, some insurers may take these scenarios as probable cause to lapse the policy. In such a case, a reliable bad faith lawyer is your best way out.
4. Inappropriate Attempts At Revoking The Policy
The insurer has the freedom to revoke most life insurance claims within two years after proving any material misappropriations on the part of the insured.
This is called the two-year incontestability clause. It states that your life insurer cannot contest your claim’s validity two years after it gets into effect.
After two years, your life insurer has no other option but to honor the claim. Revoking the claim after an investigation into material misappropriations like health is in bad faith.
In case an insurer seeks to revoke your policy on these grounds, your easiest way out is to contact a bad faith lawyer to represent your interests.
5. Denying A Claim Without Fair Reason
In the case that an insurer denies your claim, it should be with fair reason and proper communication. In some rare cases, the insurer may even decide to ignore the beneficiaries hoping that you will give up and go away.
Be it not returning calls, ignoring emails, or not giving just reasons for a claim denial, this qualifies as a good case of your insurer acting in bad faith.
Your insurer has a duty to be transparent and communicate all details of the claim or settlement with you. Failure to do so and help from a lawyer is long overdue. Always remember, they can ignore your calls but will think twice before ignoring calls from a life insurance lawyer.
6. Partially Honoring An Agreed Upon Claim
Another typical case of bad faith is the partial honoring of an agreed-upon claim. Primarily, an insurer will frustrate the insured with delays and denials and eventually give a low-ball offer or a policy change.
The beneficiaries, frustrated and desolate, would take the low ball offer, the proverbial half loaf of bread, than no bread at all. Sometimes, they may even agree to a change in policy that is not in their best interest.
Best believe that an insurer has enough resources to pay the claim in full. They are not paying half the claim because of a recession, tough times, or bankruptcy. They only do so because they find an opportunity to prey on somebody they deem weak or defenseless.
7. Misrepresentation Of Policy Provisions
In some cases, insurers may deny a claim on the grounds of misrepresented policy provisions that have nothing to do with the insured in the first place.
Some misrepresentations in policy provisions may be due to errors the insurance agent made that eventually became bedrocks and foundations of your life policy.
Many states have laws that protect the insured in case of such occurrences. Failure by the insurers to honor a claim on these grounds can be deemed as acting in bad faith.
Damages From An Insurance Bad Faith
Acting in bad faith comes at a hefty cost to the insured and their beneficiaries. Apart from potentially losing the insurance claim, an insured can also face attorney’s fees, consequential damages, or interest paid on borrowed funds. You can categorize damages and compensation from bad faith into:
• Contract Damages
This is the compensation that includes everything that was agreed upon in the life insurance policy and that both parties could see at the beginning of the trial.
• Tortious Damages
This is the compensation that arises from all costs and damages the insured accrued outside the insurance policy. These can include interest on loans, lawyer’s fees, and health costs.
• Punitive Damages
If the court can prove beyond reasonable doubt that the insurer acted with malice, punitive damages are fines or other forms of punishment that the court can mete on the insurer.
Level the Playing Field Today With Life Insurance Law
After reading all this, it’s pretty evident that the insurance game is rigged; and it’s not towards you, your family, or other beneficiaries. With a reputable law firm like Life Insurance Law on your side of the boxing ring, these odds can easily turn in your favor.
On the backdrop of years of experience and an outstanding team, we have made a career out of fighting for folks like you and taking insurance companies at their word. For help with these cases, contact us today, and we will be more than willing to fight for you.
