Insurance Company Acting in Bad Faith? Signs Your Life Insurance Denial May Be Illegal

A Wrongful Denial Can Be More Than an Insurance Disagreement

Life insurance companies have the right to investigate claims and deny benefits when a valid policy provision supports the decision. But they do not have unlimited freedom to handle claims however they want.

Insurance laws generally require companies to follow certain standards when investigating and resolving claims. The National Association of Insurance Commissioners' (NAIC) model unfair claims laws identify practices such as misrepresenting relevant policy provisions, failing to conduct reasonable investigations, and failing to make good-faith efforts to settle claims when liability is reasonably clear. Individual states have their own laws and standards.

When an insurer crosses the line from a legitimate coverage dispute into unreasonable or unfair claim handling, the conduct may potentially amount to insurance bad faith.

Bad Faith Can Take Many Forms

Bad faith does not simply mean that the insurance company denied a claim.

Sometimes insurers and beneficiaries genuinely disagree about what a policy covers. A denial can still be lawful even when the beneficiary strongly disagrees with it.

The concern is how the insurer reached that decision and whether it had a reasonable basis for doing so. Potential warning signs can include:

• Denying a claim without adequately explaining why
• Ignoring evidence that supports payment
• Repeatedly delaying the claim without a clear reason
• Requesting unnecessary or duplicate documents
• Misrepresenting what the policy says
• Relying on an exclusion that does not appear to apply
• Changing the reason for denying the claim
• Refusing to pay without conducting a reasonable investigation

The NAIC's model standards specifically identify refusing to pay claims without a reasonable investigation and knowingly misrepresenting relevant facts or policy provisions as unfair claim practices.

A Proper Investigation Should Consider the Available Evidence

Life insurance claims can require investigation, particularly when questions arise about the policy, application, cause of death, beneficiary designation, or other coverage issues. But an investigation should be meaningful.

For example, an insurer should not focus only on evidence that supports denying the claim while ignoring records that point in the other direction. Depending on the dispute, a proper investigation might include reviewing:

• The complete life insurance policy
• The insured's application
• Medical records
• The death certificate
• Accident or police reports
• Beneficiary records
• Communications with the insured or beneficiary
• Underwriting information

If an insurer denies a claim before obtaining important records or refuses to consider evidence provided by the beneficiary, that conduct may deserve closer scrutiny.

Insurance Companies Should Not Rewrite the Policy After a Claim

Life insurance policies can contain complicated definitions, exclusions, limitations, and conditions. Those provisions matter.

An insurer generally cannot deny benefits by applying an exclusion that does not appear in the policy or by stretching policy language beyond what it reasonably covers.

For example, the company might argue that a particular death falls within an exclusion. The beneficiary may believe the policy language does not support that conclusion.

When that happens, the exact wording of the contract can become central to the dispute.

Beneficiaries should consider obtaining the full policy and comparing it with the insurer's written denial. If the explanation in the denial letter does not match the policy language, an attorney can investigate further.

Bad Faith Claims Depend on the Law That Applies

Insurance bad faith is largely governed by state law, so the rules and available remedies can differ depending on where the claim arises and what type of policy is involved.

That distinction is particularly important with life insurance provided through an employer.

The federal Employee Retirement Income Security Act, or ERISA, governs many employer-sponsored life insurance plans. ERISA can preempt certain state-law claims, including some traditional bad faith claims involving the handling of benefits.

That does not mean beneficiaries under an ERISA plan have no legal options. Federal law provides ways to challenge denied benefits and seek judicial review after applicable claim and appeal procedures have been followed.

Determining whether state insurance law or ERISA applies can therefore be an important part of evaluating a denied life insurance claim.

Additional Compensation May Be Available in Some Cases

When a life insurance claim is successfully challenged, recovering the unpaid death benefit is often the primary goal.

Depending on the applicable state law and circumstances, however, additional compensation may sometimes be available when an insurer acted improperly.

Potential remedies can vary and may include interest, certain financial losses caused by the insurer's conduct, attorney's fees where authorized, or other damages permitted by law.

Not every wrongful denial qualifies for additional damages, and the remedies available under an ERISA-governed policy can differ significantly from those available under state law.

An attorney can determine which rules apply before evaluating what compensation may be recoverable.

Morgan & Morgan Can Challenge Improper Life Insurance Denials

When an insurance company has already denied a claim, it may feel as though the decision is final. It may not be.

Morgan & Morgan can review the policy, denial letter, claim file, medical records, correspondence, and other evidence to determine how the insurer reached its decision.

If the company failed to properly investigate the claim, misrepresented the policy, ignored important evidence, or otherwise handled the claim improperly, our attorneys may be able to challenge the denial and pursue the benefits you are owed.

Contact Morgan & Morgan today for a free case evaluation. The Fee Is Free™: you don't pay unless we win.

FAQ

What is bad faith insurance?

Insurance bad faith generally refers to unreasonable or unfair conduct by an insurance company when handling a claim.

The exact legal definition varies by state, but it can involve conduct such as failing to reasonably investigate a claim, misrepresenting policy provisions, or refusing to pay benefits without a reasonable basis.

How can I tell if my insurer acted unfairly?

A denial alone does not necessarily mean the insurer acted improperly.

However, warning signs may include unexplained delays, inadequate investigations, ignoring evidence, repeatedly changing the reason for the denial, or relying on policy language that does not appear to support the insurer's decision.

An attorney can review the entire claim history rather than relying solely on the explanation provided in the denial letter.

Can I sue a life insurance company?

Potentially. Beneficiaries may be able to pursue legal action to recover wrongfully denied life insurance benefits. Additional claims may also be available depending on the insurer's conduct and applicable law.

Employer-sponsored policies may be governed by ERISA, which has its own procedures and remedies for challenging denied benefits.

What types of compensation may be available beyond the policy benefits?

It depends on the policy, applicable law, and insurer's conduct.

Some state laws may allow additional remedies when an insurer acts in bad faith, potentially including interest, certain damages caused by the improper denial, attorney's fees where permitted, or other compensation.

ERISA-governed plans can involve different remedies, so the type of life insurance coverage should be identified before determining what compensation may be available.

How can an attorney help prove bad faith?

An attorney can examine more than the insurer's final denial letter.

That may include reviewing the policy, claim file, internal communications obtained through litigation when available, medical evidence, underwriting records, document requests, and the timeline of the insurer's investigation.

The goal is to determine whether the insurer had a reasonable basis for its decision and whether it followed the legal requirements that applied to the claim.

Why should I choose Morgan & Morgan?

Taking on a life insurance company can require reviewing complicated policy language, extensive claim records, medical evidence, and the insurer's entire handling of the claim.

Morgan & Morgan has the resources to investigate disputed life insurance claims and challenge insurance companies when benefits have been improperly denied.

Our attorneys fight For The People™, not the insurance companies. If you believe your insurer unfairly denied a life insurance claim or acted in bad faith, we can review what happened and explain your legal options.

Contact Morgan & Morgan today for a free case evaluation. The Fee Is Free™ promise means you don't pay unless we win.