You invest in insurance coverage to protect yourself from catastrophic financial losses. Your homeowner’s policy will protect you if a tree branch comes down on your roof. Your liability policy on your vehicle will save you from someone filing a lawsuit against you if you cause a crash that totals their vehicle. Your medical insurance will cover the cost of your care if you become sick or get hurt.
Obviously, the company that provides your policy makes more money when you pay your premium but don’t need to file a claim. Every claim that you file reduces their profit margin on your policy. What can you do if the company denies your claim even though it is reasonable and valid?
Federal laws govern insurance companies to protect consumers
Profit is a strong incentive. If there weren’t rules that forced insurance companies to cover certain claims, many more people would likely face unfair denials when they most need their coverage. Bad faith insurance laws help curb unfair practices by insurance companies.
If they refuse to cover a claim that clearly falls under the scope of an active policy, their actions constitute bad faith insurance practices. The claimant can then possibly bring a claim against them in court.
What can a bad faith insurance claim do for you?
A denied claim can mean hardship for you. You may have to pay costs yourself or even take out a loan just to repair your house or cover your expenses after a crash. Given that a profit incentive is what leads to unfair denials, financial punishment can remind insurance companies why they must uphold the terms of the policies that they write.
If someone with a denied claim successfully pursues a bad faith insurance action against the company, the courts may not only order the insurance company to pay the claim but may also award that individual an additional amount of compensation that serves as a punishment for the insurance company. That money can reduce the negative impact of your denied claim for you as well.
Reviewing your policy paperwork and your claim denial with an attorney can help you evaluate if you have a good case to claim bad faith insurance practices.