When Your Insurance Company Avoids Its Obligation to Investigate a Claim or Provide Proper Compensation, or Improperly Delays a Claim
Like most people, you probably buy insurance to cover some of the bad things that can happen in your everyday life or business, such as:
- Health and medical insurance
- Life insurance
- Homeowner’s or renter’s insurance
- Automobile insurance
- Fire insurance
- Long-term disability insurance
- Business interruption insurance
- Business property insurance
- Comprehensive general liability (CGL) insurance
- Directors and Officers insurance
Then, when disaster strikes, you have the necessary coverage to recover from your losses quickly and without financial stress – or at least you think you do. In some cases, our insurance companies will misinform or even mislead us to avoid their obligation to investigate a claim or provide proper compensation. When this occurs, the insurance company is acting in bad faith. Unfortunately, there are instances of insurance bad faith in most insurance arenas. The most common cases include:
- Life Insurance: The insurance company refuses to pay full policy limits after a loved one passes away. This is especially common on claims under “burial policies” (designed to pay enough benefits to cover a loved one’s funeral) and claims where the insured dies within two years of getting the policy (known as the “contestability period” under Mississippi law).
- Fire Insurance: The insurance company refuses to pay for damages caused by a fire. Often the insurance company will allege the fire was caused by “arson”, however this defense is very difficult for insurance companies to prove. Instead, the insurance company may delay the claim over a period of many months and keep asking the insured to provide more and more personal and financial information, with the hope the insured eventually gives up and refuses to provide any more information. Then, the insurance company denies the claim for the insured’s alleged “failure to cooperate”.
- Homeowner’s Insurance: Most homeowner’s policies in Mississippi are “all risk” policies. That means they provide coverage for any “direct physical loss” to the home. To avoid coverage for any “direct physical loss” under such a policy, the insurance company must prove an exclusion applies to the loss. If no one knows the cause of the loss, it will be covered. Many times, especially in claims involving hurricane or tornado damage, or for claims involving water damage, insurance companies deny claims without actually proving the damage is caused by an excluded risk. Sometimes they even use paid “experts” to lie about the real cause of the loss.
- Health Insurance: The insurance company refuses to pay for medical bills or refuses to pre-approve certain medical services that should be covered by the policy.
- Automobile / Uninsured Motorist Coverage: The insurance company refuses to pay for damages to your vehicle or injuries you suffered due to another driver’s negligence, where the other driver was uninsured or did not have enough insurance to cover your injuries, when those damages should have been paid for under the policy.
- Disability Benefits: The insurance company refuses to pay or continue paying under a disability policy even though you are disabled and unable to return to work.
Good Faith and Fair Dealing
All insurance policies, which are contracts, include an implied covenant of “good faith and fair dealing”. Unfortunately, the Mississippi legislature has not seen fit to adopt a formal “Unfair Claims Settlement Practices Act” (UFCPA) like many other States have done (thereby codifying through written law acts that under the “common law” may constitute breaches of the duty of good faith and fair dealing). However, a look at a sister State’s Unfair Claims Practices Act gives a good summary of an insurance company’s duty of good faith and fair dealing – and what types of conduct may constitute a breach of that duty
(1) Knowingly misrepresenting relevant facts or policy provisions relating to coverages at issue;
(2) Failing to acknowledge with reasonable promptness pertinent communications with respect to claims arising under its policies;
(3) Failing to adopt and implement reasonable standards for the prompt investigation and settlement of claims arising under its policies;
(4) Except when the prompt and good faith payment of claims is governed by more specific standards, not attempting in good faith to effectuate prompt, fair and equitable settlement of claims submitted in which liability has become reasonably clear;
(5) Compelling insureds or beneficiaries to a life insurance contract to institute suits to recover amounts due under its policies by offering substantially less than the amounts ultimately recovered in suits brought by them; provided, that equal consideration shall be given to the relationship between the amount claimed and the amounts ultimately recovered through litigation or other valid legal arguments;
(6) Refusing to pay claims without conducting a reasonable investigation except when denied because of an electronic submission error by the claimant;
(7) Failing to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed;
(8) Attempting to settle or settling claims for less than the amount that a reasonable person would believe the insured or beneficiary was entitled by reference to written or printed advertising material accompanying or made part of an application; provided, that this subdivision (8) does not apply to settlement of, or attempts to settle, claims by third-party claimants;
(9) Attempting to settle or settling claims on the basis of an application that was materially altered without notice to, or knowledge or consent of, the insured;
(10) Making claims payments to an insured or beneficiary without indicating the coverage under which each payment is being made. Nothing in this subdivision (10) shall be construed to require specific coverage identification for payments made to meet urgent needs of an insured; provided, that the insured, at or before the final settlement of the claim, receives a written explanation indicating the coverage or coverages under which the payments are made;
(11) Unreasonably delaying the investigation or payment of claims by requiring both a formal proof of loss form and subsequent verification that would result in duplication of information and verification appearing in the formal proof of loss form. Nothing contained in this subdivision (11) shall be construed as obligating any insurer to make a decision upon any claim without sufficient investigation and information to determine if the claim, or any part of the claim, is false, fraudulent, or for an excessive amount;
(12) Failing, in the case of claims denials or offers of compromise settlement, to promptly provide a reasonable and accurate explanation of the basis for such actions. Nothing contained in this subdivision (12) shall be construed as obligating any insurer to make a decision upon any claim without sufficient investigation and information to determine if the claim, or any part of the claim, is false, fraudulent, or for an excessive amount. Further, this subdivision (12) shall not apply to denials of, or offers of compromise settlement of, third-party claims;
(13) In response to a request for claims forms, failing to provide forms necessary to present claims within fifteen (15) calendar days of such a request with reasonable explanations regarding their use;
(14) If the insurer owns a repairer or requires a repairer to be used, the insurer’s failure to adopt and implement reasonable standards to assure that the repairs are performed in a workmanlike manner; or
(15) Failing to make payment of workers’ compensation benefits as such payment is required by the commissioner of labor and workforce development or by title 50, chapter 6.
Although Mississippi has not formally adopted a version of the UFCPA, the Mississippi Department of Insurance did adopt a “Policyholder Bill of Rights” following Hurricane Katrina:
(1) Policyholders shall have the right to competitive pricing practices and marketing methods that enable them to determine the best value among comparable coverage.
(2) Policyholders shall have the right to insurance advertising and other selling approaches that provide accurate and balanced information on the benefits and limitations of a policy.
(3) Policyholders shall have the right to assurance that the insurance market in general and their insurance company in particular is financially stable.
(4) Policyholders shall have the right to receive good service from competent, honest individuals and producers, and to have their questions addressed promptly.
(5) Policyholders shall have the right to a policy in an easily readable format, to receive a complete policy, and to request a duplicate or replacement policy as needed.
(6) Policyholders shall have the right to assurance that their insurance company is regulated to comply with Mississippi laws requiring economic delivery of coverage and loss prevention measures.
(7) Policyholders shall have the right to balanced and positive regulation by the Mississippi Department of Insurance.
(8) Policyholders shall have the right to request the license status of an insurance company or producer.
(9) Policyholders shall have the right to receive in writing from their insurance company the reason for any cancellation or nonrenewal of coverage. The written statement from the insurance company must provide an adequate explanation for the cancellation or nonrenewal of coverage.
(10) Policyholders shall have the right to cancel their policy and receive a refund of any unearned premium. If a policy was funded by a premium finance company, the unearned premium will be returned to the premium finance company to pay toward the policyholder’s financing loan.
(11) Policyholders shall have the right to a written notification detailing any change in policy provisions relating to their coverage at renewal.
(12) Policyholders shall have the right to receive a written explanation of why a claim is denied, in whole or in part.
(13) Policyholders shall have the right to request and receive from the insurance company any adjuster reports, engineer reports, contractor reports, statements or documents which are not legally privileged documents that the insurance company prepared, had prepared, or used during its adjustment of the policyholder’s claim. A company may keep confidential any documents they prepare in conjunction with a fraud investigation.
(14) Policyholders shall have the right to have any decision regarding the denial or nonrenewal of their policy, or the adjustment of their rates not be based solely on the basis of their credit information. If an insurance company uses credit information, it must comply with the provisions set forth in Mississippi Department of Insurance Regulation 2003-1, “Use of Credit History and Insurance Scores for Determining Rates and Eligibility for Personal Insurance”, and the Federal Fair Credit Reporting Act.
(15) Policyholders shall have the right to prevent an insurance company, agent, adjuster or financial institution from disclosing their personal financial information to companies or entities that are not affiliated with the insurance company or financial institution. Insurance companies must comply with the provisions set out in Mississippi Department of Insurance Regulation 2001-1, “Privacy of Consumer Financial and Health Information Regulation”.
(16) Policyholders shall have the right to receive at least thirty (30) days notice of the nonrenewal of their policy pursuant to the provisions of Miss. Code Ann. § 83-5-28.
(17) Policyholders shall have the right to be treated fairly and honestly when making a claim.
(18) Policyholders shall have the right to reject any settlement amount offered by the insurance company.
(19) Policyholders shall have the right to file a written complaint against any insurance company or insurance producer with the Mississippi Department of Insurance, and to have that complaint investigated by the Mississippi Department of Insurance.
Since 2009, this “Bill of Rights” is required to be delivered with every homeowners personal lines residential property coverage insurance policy issued in Mississippi.
To summarize, the types of scenarios where an insurance company can be found to have violated acted in bad faith include:
- The insurance company refuses to pay compensation or provide coverage that should be provided by the policy.
- The insurance company unreasonably delays its investigation of the insured’s claim.
- The insurance company fails to conduct an adequate investigation of the insured’s claim.
- The insurance company unreasonably delays payment of an insured’s claim.
- The insurance company pays some, but not all of the compensation owed under the policy.
- The insurance company does not inform the insured about the existence of all available coverage/compensation under the policy.
- The insurance company doesn’t tell the insured the truth, or the whole truth.
Take Steps to Preserve Your Bad Faith Claim!
Hopefully, your insurance company will handle your claim fairly and timely, and will provide you with all the compensation and benefits you are entitled to receive. But it is always wise to document the process, just in case you fall victim to bad faith. Record as much information as possible, including:
- Where possible, take pictures to document your loss.
- Keep copies of all claims forms and correspondence you receive from the insurance company.
- Keep copies of all claims forms and correspondence you send to the insurance company. Make a copy of what you are going to send after you have filled it out and signed it.
- Keep a record of the dates and facts of all communications you have with anyone related to your claim. Be sure and get the name, address, employer and phone number of everyone you speak with, and write it down.
- If possible, record your conversations with insurance company representatives and claims personnel. You don’t have to tell them you are recording the conversation.
- Make sure you timely comply with all requests for information or assistance made by the insurance company, and of course make a record of what you do to comply.
Damages You May Have a Right to Recover
If your insurance company is found guilty of acting in bad faith, you may be entitled to damages over and above the contractual benefits provided by the insurance policy. Damages recoverable when an insurance company commits bad faith include, but are not limited to:
- The contractual benefits the insurance company should have paid
- Interest on the contractual benefits the insurance company should have paid, from the date due through the date paid
- Compensation for the insured’s inconvenience and related expenses
- Compensation for worry, anxiety and emotional distress caused by the conduct of the insurance company or its representatives
- Reasonable attorneys’ fees and expenses incurred by the insured in enforcing the insured’s contractual rights
- Punitive damages in an amount, determined by a Jury, sufficient to punish the insurance company for its bad faith and set an example to prevent that insurance company and other insurance companies from committing similar misconduct and bad faith in the future
Statute of Limitations for Filing a Bad Faith Claim in Mississippi
According to Miss. Code § 15-1-49(1)the statute of limitations for filing a bad faith claim against insurance company in Mississippi is three years. This means that the insured must file his or her claim within three years of the alleged incident of bad faith. Once three years have passed, the insured may be time barred from filing an action to enforce his or her contractual rights, and/or to hold the insurance company liable for its bad faith.
If you feel you an insurance company may have committed an act of bad faith, or even just have a question about your rights under an insurance policy, call Van Cleave Law today. Consultations are always free.