When is an insurance company considered to have committed a “bad faith” denial of a disability claim?

According to Black’s Law Dictionary, the definition of bad faith is: “The opposite of ‘good faith,’ generally implying or involving actual or constructive fraud, or a design to mislead or deceive another, or a neglect or refusal to fulfill some duty or some contractual obligation, not prompted by an honest mistake as to one’s rights or duties, but by some interested or sinister motive.” In contract law, there is the concept of “the covenant of good faith and fair dealing,” which means the insurance company has certain duties in carrying out its obligations according to the insurance policy contract. The following are examples of an insurance company’s bad faith after a policyholder files a claim for disability:

  • the insurer fails to conduct a reasonable and full investigation into the claim;
  • the insurance company acts unreasonably in evaluating the claim;
  • the insurer unfairly delays the processing of your claim;
  • the insurance company wrongfully denies the claim;
  • the insurance company unreasonably delays payment of benefits or pays less than the full value of benefits owed under the policy.

If your long-term disability claim is governed by ERISA, then you cannot sue for bad faith or punitive damages. This is because ERISA is a federal law that pre-empts state law claims such as bad faith and punitive damages. You can only sue for the benefits due.

An Experienced Disability Attorney Can Help You Navigate an ERISA-Governed Appeal

In ERISA disability litigation, the terminology used is a little different than “bad faith.” Federal courts will review the insurance company’s decision to determine whether the denial was “arbitrary and capricious.”

Without legal guidance from an attorney, claimants may unknowingly hurt their ability to prove the insurance company’s bad faith. For example, the claimant may allow the insurance company multiple opportunities to deny the claim by filing multiple appeals when multiple appeals were not required before making the carrier accountable in a lawsuit. As stated above, whether to appeal is a decision that you should make only after consulting with an experienced disability attorney.