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Insurance Bad Faith

31 Oct

 

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Insurance Companies are Bad. And They Know It. (Photo credit:  Wikipedia)

When something goes wrong with an insurance claim, you will often hear the term “bad faith” thrown around. But what does bad faith really mean? California courts opine that “bad faith signifies a breach of the covenant of good faith and fair dealing that is implied by law in every contract…. [this] involves something beyond breach of the specific contractual duties or mistaken judgment.”* Clear now? If your reply is “Ummm… NO. Not at all,” you are not alone.

The courts are trying to say that your insurance company commits bad faith not just by violating the terms of the insurance agreement – there has to be an additional lack of good faith and fair dealing in the way your insurer handles the claim.

Example of Bad Faith

For example – your insurance company fails to pay you for fire damage to your back shed, even though it is clearly covered by the “other structures” clause in your homeowners policy. This is not bad faith. It IS a violation of the contract, but not bad faith on its own.

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Shed (credit:  Wikipedia)

But – if your insurer fails to pay for your covered shed AND it never even investigated the back shed, despite your informing them it is damaged and giving them the access and opportunity to investigate – this is probably bad faith. Now, before you get too excited about this – because I know that insurers fail to fulfill their duties under the policy all the time – you need to understand that to be successful in court for bad faith, the insurance company’s failure has to be pretty egregious.

But the Bad Action Must be REALLY Bad

In the example of the shed, your insurer would need to not only fail to investigate when you asked them to, but there would have to be an additional shockingly bad action – such as they repeatedly refused to consider the shed. For a court to recognize bad faith, the bad action needs to clearly show that they are just not interested in being fair.

Is it Bad Faith?  Helpful Three Step Analysis

Another good example is when an insurance company causes unreasonable delay in the payment of benefits – which has now become a common routine in the industry. Let’s take our three part analysis and apply it to the situation where the insurer is failing to pay promptly:

  1. Did my insurer violate the terms of the contract?  Yes, the policy says they have to promptly investigate and issue benefits when they determine the claim is valid – and they didn’t. Move to question 2.
  2. When my insurer violated the contract, did it show a lack of good faith and fair dealing in the way it handled the claim?  Look carefully at how long it took for them to issue benefits. Were they actively investigating the entire time? Did you see evidence that they were actively investigating? Did you continuously remind them that you had not received a benefit payment, yet they still seemed to be doing nothing? Evaluate all of the actions that your insurance company took during the handling of the claim. If you believe the actions of your insurer clearly show that you were not treated fairly, move to question 3.
  3. Does the lack of good faith and fair dealing rise to the level of bad faith, according to the courts?  Now really look at all the actions of your insurer (or, their lack of action). Is it clear to you that your insurance company was just not interested in being fair? Would their actions shock the average person? Why?

As you can see, the definition of bad faith is not very precise. To compound the confusion, the definition varies depending on the state you reside in. To really grasp if your have been treated badly enough that you have a strong claim for bad faith, contact an experienced insurance attorney.

*Chateau Chamberay Homeowners Ass’n v. Associated Int’l Ins. Co., 90 CA4th 335 (2001).

My Insurer Did Not Pay and I Want to Sue Them – How Much Time do I Have?

5 Jan
Time is Ticking! (source Wikipedia)

Time is Ticking! (source Wikipedia)

The answer to this question depends on 1) Which laws are applicable to your policy, 2) Where you are, and 3) What your policy says.

1) Which Laws Apply?

First, you need to know if your policy is subject to state laws or federal laws. Many policies are subject to ERISA – a federal law that trumps all state laws. To get a good idea of whether or not your policy is subject to ERISA, ask three basic questions, in this order: (a) Did I buy my policy from my employer? (or your employer paid for it) If yes, it is probably subject to ERISA, (b) Is my employer a government agency or government contractor? If yes, you may fall under an ERISA exception and not be subject to ERISA, (c) Is my employer a religious institution? If yes, you fall under an ERISA exception and are not subject to ERISA. Please note that these questions only provide a basic guide, but there are many exceptions and you should consult an attorney who specializes in insurance law and/or ERISA to fully explore if your policy is subject to the federal law ERISA. If you suspect that ERISA applies, you need to contact an attorney right away. The statute of limitations varies depending on which type of claim you would like to bring, and in some cases, once your claim has been denied (the first denial, even before you file an appeal) you have very little time.

If ERISA does not apply, proceed to question number 2.

2) Where Are You?

If your claim is not subject to ERISA, it will be subject to your state’s laws. Each and every state has different statutes of limitation, meaning the amount of time you have to file a lawsuit will vary depending on which state you reside in. For example, in California, you should file your claim within two years after the date your claim was denied. If you file within two years, you can seek redress for “bad faith” and receive damages for emotional distress and possibly a punitive award (the court “punishes” your insurer for acting in bad faith). If you miss the two year deadline, you can still sue for breach of contract, which has a statute of limitations of four years. If you live in New York, you have six years in which to file your suit, for either breach of contract or bad faith. However, be careful, because your answer to question number three can change these state-provided statutes.

3) What Does Your Policy Say?

Most states also allow the court to look to your insurance policy to see if there is another limitation on when you can file suit. For example, if your policy has a clause that requires you to file suit within two years, the court has the discretion to apply the clause instead of your state’s statute of limitations. Whether or not a court follows this practice depends on (a) if the court thinks the clause is reasonable and not a hindrance to justice and (b) whether or not the courts in your state have a history of applying these clauses. Again, you need to contact an insurance attorney to be certain.

The moral of the story is this:  Contact an attorney as soon as you realize you have a claim against your insurer, and ask about the statute of limitations. You do not want to lose your right to file suit!

Disability Insurance – How to Choose an Attorney

30 Dec
Balanza de la Justicia

Scales of Justice (Photo credit: Wikipedia)

I have spent many years helping disability claimants receive their benefits. When an insured suffering with a physical or mental disability is denied his or her insurance coverage claim, they begin the confusing and uncertain process of looking for a capable, trustworthy attorney to help them obtain their money.

As an attorney who is familiar with the industry, I have always empathized with claimants who call and are really suffering – under emotional duress, experiencing physical pain and limitations, worried about their significant loss of income, unsure whether they will ever work in their field again… The last thing they need is the extra stress of researching and sifting through the available attorneys. Information about attorneys is not disseminated in an efficient manner, and the internet can only tell you so much. Here are some tips:

1. Choose an attorney who is a specialist in insurance claims.

For the most part, attorneys specializing in insurance claims are experts at what they do, and will ultimately recover the client’s benefits (if the claim is valid, of course). The best place to find their dedicated specialty is on their website. If the website doesn’t clarify the types of clients they have experience representing, call and ask. Insurance litigation is a very complex specialty, and disability insurance is a unique sub-speciality of insurance. You should select an attorney who has already handled disability claims successfully, if possible.

2. Don’t choose someone simply because they are nearby.

You are not limited to selecting an attorney located in your home state. Often the best attorneys are located in large metropolitan areas, or in the most favorable venue state. That does not mean they are less able to help you. In fact, it is much better to get an excellent attorney located in another state than hire one nearby who has no experience battling with large insurers.

3. Choose an attorney you can trust.

Follow your gut feeling. If you are seeking an attorney who will speak to you on the telephone directly, and answer your questions to your satisfaction, you can find one. Clients have often contacted me because they did not feel comfortable with the treatment they received when they contacted other firms – something just didn’t feel right. For example,  I once had a caller tell me, “I already contacted XYZ Law Firm, and they told me my claim is incredibly unique and they had never heard of such bad behavior from an insurer. I don’t know why, but I just didn’t believe them. So I decided to call other firms.” The caller was absolutely correct. His claim was not that unique. The large firm was using a sales technique to “sign him up”. Ultimately, he signed with us instead.

4. Ask who will be handling your case.

At some firms, highly skilled paralegals and legal assistants perform the majority of the work on your case. You may manage to get an attorney on the telephone once during the entire representation. At other firms, the attorneys take a more active role, and will even hand out their personal cell phone numbers. Choose the situation you are comfortable with. When you are thinking about signing with a firm, ask them who your main contact will be, and what that person’s role is within the firm. Ask to speak with that person, so you know what to expect. You are the client. You can insist upon having direct contact with an attorney, if you so desire.

5einstein2. Don’t be fooled by fancy legal terminology.

While you certainly want to hire an attorney who is familiar with the laws applicable to your claim, don’t hire one because you were dazzled by their ability to recite legal terms. If an attorney is rattling off legal terms that you have never heard, stop him/her and ask what it means! See if their explanation makes sense to you. Because as Albert Einstein once said, “If you can’t explain it simply, you don’t understand it well enough!”

6. If you call a firm and they indicate they are unable to represent you, ask why. Then, ask them if they can recommend someone better-suited to help you.

Often, merely posing the question “Why won’t you represent me?” will reveal a great deal about your claim, and help you find a firm that is a better fit. It also does not hurt to ask if they know of a firm that handles your type of claim. Usually a firm has a short list of pre-screened firms it is willing to work with, so if you like a particular firm, you will probably like the attorneys they routinely work with.

7. Check for a disciplinary record.

Last but not least, go to the state bar website of the attorney you have selected and run a search for disciplinary records. You will also find information about which law school the attorney attended, etc. It may be wise to avoid attorneys who attended law schools that are not accredited by the American Bar Association (a quick Google search will provide this info), although I say that with some reservation, because I have noticed that fantastic attorneys graduate from all levels of law schools. In general, law school is extremely rigorous. Ever see the movie “The Paper Chase?”.

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