Insurance companies owe their policyholders a duty to investigate and compensate a claim per the insurance agreement. Therefore, the policyholder may file a bad faith claim when an insurer denies their claim or fails to investigate one promptly without a good cause.
In a nutshell, defending against bad faith claim is simply disproving the allegations of bad faith made against you. All you have to do is validate your reasons for denying the claim or any other actions the policyholder may cite to be in bad faith.
Look at all aspects of the claim
Not every denial can lead to a bad faith claim. If a policyholder accuses you, the insurer, of acting in bad faith, you need to ask yourself these three questions:
- Does the insurance policy provide coverage?
- Was the claim made on time?
- Are there any exclusions to the insurance policy?
If the insurance policy does not cover the risk which led to the claim, you are not legally obligated to compensate the policyholder. Equally, claims made after the expiration of the period stated in the insurance agreement may be dismissed. Other instances, such as intentional acts by the policyholder that caused them harm, may lead to claim denials.
Sometimes, the devil is in the details, and the policyholder may not have gone through the policy document terms and conditions carefully before concluding that you acted in bad faith.
Protect your interests
Defending against a bad faith claim can be costly, time-consuming, and damaging to the reputation of your business. Therefore, being well prepared and taking your defense seriously will ensure the best possible outcome. Experienced legal guidance can help.