When Is An Insurance Company Considered To Have Committed A Bad Faith Denial Of A Disability Claim

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 Claim?

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. Good faith is an honest and genuine attempt to provide accurate information and comply with the insurance policy’s terms. In contrast, bad faith involves deceptive practices, such as withholding relevant details 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 like delaying or unduly complicating the claims process, ultimately hindering the policyholder’s right to receive entitled benefits. 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 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, and
• The insurance company unreasonably delays payment of benefits or pays less than the total value of benefits owed under the policy.

It’s essential for individuals navigating long-term disability claims to be vigilant for any signs of bad faith from 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 apply only if ERISA regulations 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 related to employee fringe benefits. This is the legal doctrine of preemption, meaning that ERISA regulations preempt most bad-faith laws in ERISA claims. You can only sue for the benefits due, and the terminology is slightly different from “bad faith.” Federal courts will review the insurance company’s decision to determine whether 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 acts 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 Attorney Can Help You Navigate Your Claim

Because determining 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 Ortiz Law Firm at (888) 321-8131 to schedule a free consultation.