What Is Bad Faith Insurance?

Insurance is an invaluable resource for any situation where you may be facing liability. In particular, it is often a necessary expense when you want to drive a car, own a home, or operate a business.

Business interruption insurance is especially important during the current coronavirus pandemic because the resulting financial crisis is leaving many businesses struggling to stay afloat. 

This coverage is meant to protect businesses when emergencies occur, but many businesses are being denied access to benefits they are seemingly owed. This is typically known as bad faith insurance. 

Bad faith insurance is incredibly frustrating to deal with and prompts specific action, but you need to be sure that you’re dealing with a bad faith insurance situation. It’s easy to confuse bad faith insurance with reasonable denials and standard insurance provider behavior. 

To help you better understand bad faith insurance, we’ll disclose what it entails below.

Withheld Benefits

The most iconic representation of bad faith insurance is unfairly withholding benefits. 

When you are covered by an insurance company, there is an agreement between you. This agreement states that you’ll pay a predetermined sum in exchange for benefits and coverage when it is needed. 

This means that insurance companies are responsible for providing you with benefits. These are often subject to specific terms outlined in your insurance contract, meaning that you can only receive benefits when certain criteria are met. 

When the criteria for receiving benefits is met and they are not distributed, this is where bad faith insurance happens. The main issue here is that there is often a disagreement over whether the criteria for receiving benefits have been met.

This is particularly relevant for coronavirus losses. Business interruption insurance is meant to cover the losses resulting from business interruptions, which a worldwide pandemic certainly is. 

Despite this, many businesses with this coverage are being denied claims to benefits. The basis for these rejections is that a physical loss has not occurred. 

It can be difficult to determine if insurance companies are acting in bad faith regarding coronavirus and this will likely depend on the exact language of your insurance contract.

One final aspect of withheld benefits is that the basis for the withholding must be reasonable. Insurance companies can only deny your claim if you do not meet the criteria for receiving benefits or if you violate a serious clause. An inexplicable rejection is unlawful. 

Should your business fail to receive benefits you are owed, then you are facing bad faith insurance.

Unreasonable Demands

Insurance companies may also act in bad faith by making unreasonable demands.

While insurance providers are meant to cover you, they don’t want to provide the benefits that you’re paying for. This hurts their bottom line and that’s their top priority. 

Because of this, they will do whatever they can to make your claim difficult. They make the claim process intentionally infuriating to make you give up or accept a pitiful settlement. 

Fortunately, some of the measures insurance companies take during a claim can be viewed as bad faith insurance. Specifically, unnecessary delays, ridiculous requests regarding proof of your loss, and manipulating or blackmailing you into backing off are all unlawful.

There is also a connection to COVID-19 here because insurance companies are making unfair requests about proving physical loss. It is undeniable that all closed businesses are financially suffering from coronavirus, yet the need to prove this is laughable and impossible.

With this in mind, be wary of any unreasonable demands your insurance company makes because they may be exhibiting bad faith insurance.     

Selective Investigation

Selective investigation of your case is another injustice of bad faith insurance. 

When you tell your insurance company that you have a claim, their response is to investigate it. They won’t just take your word for it – they need to verify your claim for themselves.

As you can imagine, this leaves a lot of room for bad faith. Your insurance can either delay the investigation, poorly explore it, omit details of their findings that would help you, manipulate the outcome of the investigation, or fail to do it altogether.

This places you into an impossible situation because you must wait on them to complete an investigation they have no incentive to thoroughly conduct. You also can’t force them to investigate, so you’re left in the dark without support. 

Keep in mind that insurance companies are required to investigate your case fairly and promptly. Should they fail to do their due diligence in any regard, it counts as bad faith insurance. 

Misleading Practices

Finally, intentionally misleading practices also constitute bad faith insurance. 

Your insurance contract with your provider contains very specific language. However, it is sometimes worded in ways that are intentionally confusing or misinterpretable. 

This creates room for interpretation, which can make it phrased in a way that benefits your insurance company rather than you. From this, situations arise where you’re eligible for benefits, but get denied due to an arbitrary stipulation the insurance company creates.

Remember that insurance companies don’t want to pay you. One of their strategies for accomplishing this is by trying to trick you or using loopholes. 

Insurance companies cannot be misleading. They must properly interpret the language of their insurance contracts and not warp it to disadvantage you. If your provider misleadingly makes you ineligible for benefits, then you’re dealing with bad faith insurance.

Closing Thoughts

Bad faith insurance is the last thing you need when you’re facing a financial crisis. Unfortunately, it happens often because of the nature of the insurer-insuree relationship. Insurees depend on insurers to act in good faith to provide them with what they are due.

This trust is sometimes abused and it results in bad faith insurance. Good examples of bad faith insurance include unfairly withholding benefits, making unreasonable demands, being selective in their investigation, and intentionally misleading insurance practices.

You’re paying a lot for coverage and you don’t deserve to deal with bad faith insurance. Get a skilled lawyer to help you receive the benefits you are owed if you ever face unfair insurance practices.