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Why Do Insurance Companies Act in Bad Faith?

It is crucial for all insurance policyholders to remember that insurance companies are in business to make money. No matter how an insurance company presents itself, the company is ultimately a for-profit organization that will attempt to avoid paying out on claims whenever possible. Insurance companies make their money by collecting insurance premiums and they lose money when they must pay out on claims. This unfortunately encourages some insurance companies and claims adjusters to engage in bad faith practices.

An Arizona insurance bad faith attorney can be very helpful in both discouraging bad faith practices from taking place as well as addressing instances of bad faith when they appear.

Examples of Insurance Bad Faith

Insurance bad faith occurs any time an insurance company fails to uphold or deliberately neglects a fiduciary duty to a policyholder. This can apply to procedural issues in the investigation or handling of claims or the behavior of insurance agents. Several manners exist in which insurance bad faith can be committed.

  • Misrepresenting the terms of coverage included in a policy in an attempt to delay or deny coverage or offer less coverage than the policy dictates
  • Withholding due benefits included in a policy without legal justification
  • Misrepresenting facts or insurance policy provisions
  • Failure to promptly respond to a legitimate claim
  • Failure to adopt and implement reasonable standards for processing and investigating insurance claims
  • Failure to approve or deny claims in a timely fashion
  • Failure to provide adequate justification for a claim denial
  • Compelling the insured party to pursue litigation to recover compensation available in the policy
  • Refusal to pay on a claim without investigating the proposed facts of the claim

To prove insurance bad faith, an Arizona insurance bad faith attorney must prove that the insurer withheld benefits due under the terms of the policy in question and the reasoning behind this withholding were illegal, unreasonable, or unjustified.

Handling an Insurance Bad Faith Case

Ultimately, the motivation behind any insurance company or insurance agent acting in bad faith is financial; an insurance company may hope to delay or deny a claim until the claimant simply gives up, saving the insurance company money on an otherwise justified payout.

It is important to understand that insurance bad faith can occur either intentionally or by professional negligence. Insurance companies have a legal and professional duty to process claims in a timely and reasonable manner. When they fail in this capacity, either through negligent interpretation of the terms of a policy or through willful acts intended to essentially defraud a policyholder, the insurance company commits insurance bad faith.

How Can an Attorney Help in an Insurance Bad Faith Case?

An Arizona insurance bad faith attorney can be an invaluable asset in any type of bad faith case. An attorney can help a client prove the legitimacy of his or her claim and encourage cooperation from the insurance carrier or help build a strong bad faith lawsuit with the available evidence. In many cases, simply drafting a letter alleging bad faith with the help of an attorney is enough to encourage a more agreeable discussion with a claims adjuster or insurance agent. Most insurance companies prefer to simply pay out on claims rather than risk lengthy and expensive litigation that may damage a company’s reputation.

It is crucial to act quickly if you suspect an insurance company has handled your legitimate claim in bad faith. Most of the delay tactics an insurance company may implement hinge on the claimant simply giving up on a claim or running out the available time limit for filing claims for a covered incident. Consulting with an Arizona insurance bad faith attorney as soon as any indication of bad faith appears is the best way to handle these situations in a timely and reasonable manner.