When Is An Insurance Company Considered To Have Denied A Disability Claim In Bad Faith?

Have you ever wondered when an insurance company crosses the line and denies a disability insurance claim in bad faith? Below, we will explore bad faith denials and how policyholders can determine if their insurance company has acted in bad faith.

What Is a “Bad Faith” Denial of a Disability Insurance Claim?

In contract law, there is the concept of the “covenant of good faith and fair dealing,” which means that the insurance company has certain duties in fulfilling its obligations under the insurance contract. Good faith is an honest and genuine attempt to provide accurate information and comply with the terms of the policy. In contrast, bad faith involves deceptive practices, such as withholding relevant information or denying valid claims without proper justification.

“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.”

The Law Dictionary

Examples of Bad Faith

Insurers acting in bad faith may resort to tactics such as delaying or unduly complicating the claims process, ultimately hindering the policyholder’s right to receive the benefits to which they are entitled. Specific examples of an insurance company acting in bad faith after a policyholder files a disability claim include the following:

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

It’s important for individuals navigating long-term disability claims to be vigilant for any signs of bad faith on the part of their insurance providers, as it can significantly impact the outcome of their claims.

Has Your Disability Insurance Carrier Acted in Bad Faith?

The doctrine of “bad faith” by an insurance company does not apply to every long-term disability insurance claim.  In fact, it only applies to state law claims against an insurance company based on the company’s conduct in handling a claim for individual disability insurance benefits. In other words, bad faith laws only apply when ERISA rules do not apply. ERISA rules and regulations apply to most group disability plans.

If ERISA governs your long-term disability claim, then you cannot sue for bad faith or punitive damages. Because ERISA regulations are federal, they trump all state laws regarding employee benefits. This is the legal doctrine of preemption, which means that ERISA regulations preempt most bad faith laws in ERISA claims. You can only sue for the benefits you are entitled to, and the terminology is slightly different from “bad faith.” Federal courts will review the insurance company’s decision to determine if the denial was “arbitrary and capricious.”

What Florida State Law Says About Bad Faith

Florida Statute 624.155 specifically defines bad faith in Florida state law claims as any of the following actions by the insurance company:

1. “Not attempting in good faith to settle claims when, under all the circumstances, it could and should have done so, had it acted fairly and honestly toward its insured and with due regard for her or his interests;
2. Making claims payments to insureds or beneficiaries not accompanied by a statement setting forth the coverage under which payments are being made; or
3. Except as to liability coverages, failing to promptly settle claims, when the obligation to settle a claim has become reasonably clear, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage.”

Florida Statute 624.155

An Experienced Disability Lawyer Can Help You Navigate a Bad Faith Denial

Because it can be difficult to determine whether state laws or federal regulations apply can be difficult, you should seriously consider obtaining a free consultation from an experienced disability attorney. Without legal guidance from an attorney, claimants may unknowingly hurt their ability to prove the insurance company’s bad faith. National disability attorney Nick Ortiz has years of experience in handling disability insurance claims. Call the Ortiz Law Firm at (888) 321-8131 to schedule a free consultation.