What is Bad Faith Insurance?

Bad faith occurs when an insurer breaks a contract with a policyholder by denying a legitimate claim or unreasonably delays processing a claim. Insurers must act in good faith and provide compensation when a reasonable claim is made, but they sometimes deny a claim to save money. Sometimes, they underpay a claim for the same reason. This is considered bad faith and policyholders have a right to dispute their denied or underpaid claim.

In order for a policyholder to win a case against an insurance company, he or she must show the insurer failed to honor their contract and that there was no cause to not pay the claim. In order for an insurer to deny a claim, they must show it is reasonable to reject the claim, which can be extremely difficult. Insurance companies are required to treat policyholders fairly. By law, insurers must give as much consideration to the interests of the policyholders as they do to their own bottom line.

Penalties under Colorado’s Bad Faith Insurance Statute

Colorado has a strict law designed to punish insurance companies for unreasonably delaying or denying insurance claims. C.R.S. § § 10-3-1115 and 1116. These statutes provide that under some circumstances an insurer who unreasonably delays or denies a claim may be liable to the insured for attorney’s fees, court costs and two times the covered insurance benefit.

Denied Insurance Claims

Insurance companies have the right to deny unreasonable claims, but some take this option too far by treating policyholders unfairly. Examples of bad faith include not investigating claims in a reasonable amount of time, using unreasonable interpretations of the language in the insurance policy, refusing to settle or reimburse money for losses, and denying benefits unfairly. All of these examples are considered a breach of the insurance contract. In general, the only reason a claim can be denied is if it is not covered by the insurance policy, if the claim is fraudulent, or if the policyholder has not honored his or her end of the contract.

When submitting a claim, it is important that policyholders follow the instructions to the best of their ability. All necessary information should be included with the claim and backup copies should be made of all documents. It is also important for policyholders to take photographs of anything related to a claim and keep them with the backup documents. Though many claims are processed without a problem, assuming there will be some issues and covering your tracks is always a good idea.

What Can You Do If Your Claim is Denied?

If an insurance claim is denied, you have a right to take action, as long as that claim was legitimate and reasonable. Insurance companies sometimes offer an appeals process, but this may be to discourage people from pursuing further action. If your legitimate claim is denied, you have a right to fight for what you are due.

Often, once a policyholder contacts an attorney, the insurance company will pay the claim to avoid further legal action. They understand the policyholder is serious and will settle as soon as possible. Essentially, the insurance company pushes policyholders as far as possible until it becomes an inconvenience or expense to the company.

If your insurance claim has been denied, you should take action. Miller and Steiert, P.C. can help. Contact our law firm to discuss if a denied claim is a matter of bad faith and what actions you can take to resolve the matter and receive the settlement you are due.