Examples of Bad Faith Conduct
By Alexander MacDougall, Attorney with Ray Bourhis Associates
Many states have laws on the books that establish a cause of action for bad faith denial of an insurance claim. These laws often provide for recovery of the policy benefits in question as well as extra-contractual damages suffered as a result of the claim denial such as compensation for any losses suffered as a result of the denial ( such as loss of savings, foreclosure, and emotional distress), punitive damages, and attorney’s fees. What follows is a list of examples of bad faith, but please bear in mind that no list is exhaustive; any conduct by an insurance carrier in denying or terminating benefits unfairly constitutes bad faith.
- Unreasonable delay in the investigation of a disability claim
- Requiring the insured to submit excessive documentation to support a disability claim
- Using biased medical or vocational information (from in-house or outside consultants) as a justification for denying or terminating a claim
- Failing to pay benefits where liability to do so is reasonably clear
- Misstating or misrepresenting policy coverage
- Failing to settle claims promptly, where liability has become apparent, under one portion of the insurance policy coverage (e.g. total disability) in order to influence settlements under other portions of the insurance policy coverage
- Failing to give adequate consideration to the opinions of treating doctors
- Targeting or profiling particular policy holders (such as doctors with large disability benefits) for termination or denial
- Misrepresenting a policy as being governed by ERISA when it is not
- Drawing false conclusions from surveillance (such as, asserting that engaging in physical therapy activities or unrelated tasks such as playing golf, carrying groceries, or driving proves an ability to perform occupational duties)
- Additionally, bad faith is more than just a cause of action to be used in litigating a claim; it can also be a very persuasive tool in negotiating the settlement of a claim for a much greater amount than might otherwise be available. This results in a speedier and more satisfactory resolution for the claimant.