Bad faith disability claim denial arises when an insurance company isn't handling a disability claim fairly. Insurance companies are required to act in good faith. This requires insurers to properly investigate claims, pay disability insurance claims when warranted, and not unnecessarily delay the process.
Elements of a Bad Faith Insurance Claim Denial
In general, bad faith disability claim denial involves the insurance company's refusal to pay a claim without a reasonable basis or, even if the company has a reasonable basis for denial, failing to properly investigate the claim in a timely manner. However, across the country, these elements may differ greatly and can be more restrictive depending on the state. For example, in some states, to prove an insurance bad faith claim, an insured must prove:
In other words, the insurance company must either have known that its conduct was unreasonable or recklessly disregarded the fact that its conduct was unreasonable. In these states, you must prove that the company knew it acted unreasonably or that it recklessly disregarded the fact it acted unreasonably.
By contrast, to prove an insurance bad faith claim in California, the insured must prove :
In other words, the insurance company must have acted unreasonably or without proper cause in withholding benefits that were warranted under the policy.
Whether your state follows a more restrictive definition of bad faith, like the definition above, or a less restrictive definition, like that of California, reasonableness is generally an objective, rather than subjective, standard. An insurer's erroneous failure to pay benefits under a policy doesn't necessarily rise to the level of bad faith. This means that, generally, errors, such as missed calls or lost paperwork, don't satisfy the required element of unreasonableness.
Additionally, an insurer denying or delaying the payment of benefits due to the existence of a genuine dispute with the insured as to the existence of coverage or the amount of the insured's coverage generally isn't considered bad faith. However, in general, an insurance company acts unreasonably if it ignores evidence which supports coverage.
Bad Faith Statutory Law
Many states have statutes addressing bad faith disability denials. For example, Colorado law provides that insurance companies shall not unreasonably delay or deny payment of a claim for benefits owed to a claimant. In other states, consumer protection and unfair insurance practices statutes may be used to file claims based on bad faith. For example, California's Unfair Competition Law provides for claims based on bad faith and false advertising.
Conduct Which May Be Bad Faith
Many types of conduct on the part of an insurance company may rise to the level of bad faith:
An insurance company that is found to have acted in bad faith may be liable for damages far in excess of the policy limits. The types of damages you may seek in a bad faith claim differ from state to state. They can include:
Get Legal Help Today with Your Disability Claim
Insurance policies are written in such fine print for a reason -- they're extremely complex and, well, written by lawyers. It's really difficult to know whether your insurer is acting in good faith. A qualified disability insurance law attorney can help you better understand bad faith in the context of disability insurance and the requirements necessary to prove your claim.
Learn more about this area of law on our bad faith insurance legal answers page.