What is Insurance Bad Faith?
Insurance bad faith refers to an insurance providers’ actions after you file a claim to recover damages. Insurance policies exist to provide financial protection to someone in case of an accident or unplanned event. We pay into a policy, with the hopes that if an accident occurs, we can file a claim to recoup some of the financial damages that resulted from that accident.
If an insurance provider denies your claim and fails to provide a valid reason, it is then said that the company is acting in bad faith.
First-Party Claims vs Third-Part Claims
In talking about insurance, it’s important to consider whether your claim is a first-party claim or a third-party claim.
This differentiation is especially important in issues regarding bad faith, as the requirements differ between first-party and third-party claims.
Which is the more Common Bad Faith Claim: First-Party or Third-Party Claims?
Generally, first-party bad faith claims are more common than third-party bad faith claims. That is why most information about insurance bad faith mainly discusses first-party claims.
Third-party bad faith claims do occur, but because the circumstances are more complex, it can be a difficult case to litigate.
Legitimate Reasons an Insurance Company May Deny Your Claim
There Are Multiple, Valid reasons that an insurance company may deny your claim
You may be liable for some of the damages
Depending on liability laws in your state, you may not have the right to pursue damages if you shared some of the fault in the accident (or at least 51 percent).
The statute of limitations may have passed
There are strict deadlines for filing a claim following an accident. If you fail to file your claim within that time period, you may not be able to secure compensation for your damages.
You may not be current on your policy
Typically, insurance providers will not be able to provide any financial support if you have failed to fully pay into your policy by the time of the accident.
Your accident may fall outside the policy
Many insurance policies have specific provisions for circumstances that typically aren’t covered. For example, some basic homeowner policies will not cover flooding or fire damage – otherwise known as “an act of god.”
You may have violated a law at the time of the accident
This may be a concern in cases such as car accidents or premises liability accidents. If you were driving under an invalid license and you were in an accident, your claim may be denied.
Failure to verify your damages
In some cases, an insurance company may request medical records or some other substantiating evidence in order to process your claim. If this is not submitted, your claim may be rightfully denied.