Insurance is meant to provide peace of mind against the financial costs of unexpected damage or loss. However, dealing with an insurance company after making a claim on the policy can be a huge frustration itself.
How do you know which frustrations, delays, and disappointments are normal as opposed to when something suspicious may be going on?
Knowing the signs of dishonest practices can help you identify whether you are being taken advantage of by the insurance company who is supposed to have your back.
1. Continuous or excessive delays.
2. Additional inspections of the same thing.
3. Lack of an easily understood explanation for denial.
4. Denials referencing multiple parts of a policy.
5. Attempts to blame the policyholder.
What is bad faith?
Many states recognize the existence of an implied obligation of “good faith and fair dealing” in every contract, the purpose of which is stated as ensuring one side does not unfairly deprive the other of the benefits of their bargain. Texas is not one of those states. Parties are expected to take care to know and protect their own rights.
There is an exception though in Texas for contracts that create or govern a “special relationship,” and insurance contracts fall squarely into that category.
Insurance companies are prohibited from, in essence, pretending to be helpful while in secret evading their obligations or taking advantage of a comparative lack of information or resources available to the policyholder. Actively misleading the insured about policy terms or facts of what occurred is certainly bad faith misconduct, but so are a wide range of less obvious tactics used by unscrupulous insurance companies and adjusters to unfairly deny, delay, or underpay legitimate claims.
What signs should I watch for?
If you are beginning to suspect your insurance carrier or third-party adjuster of bad faith misconduct, there are several common red flags to look for:
1. Continuous or excessive delays
One of the largest and most important aspects of an insurance company’s business involves the processing of claims made on policies they write, which may be contracted out to a third-party administrator (TPA) or adjuster to handle. An insurance company or TPA should have well-established procedures in place to ensure each claim is processed professionally in an objective manner, fairly, and on a timely basis.
In Texas, insurance companies are also required by law to meet statutory deadlines for processing a claim (although a policy can provide shorter timeframes) to ensure prompt resolution and payment of valid losses. Insurers generally have 15 business days after notice of a claim to acknowledge its existence and start an investigation or request information, then make a decision to accept or deny the claim within 15 business days (or 30 days if it involves severe weather or arson) after all information is provided, and pay any accepted claim within 5 business days after that. Failing to meet the deadlines is subject to statutory penalties.
There are, however, various ways an insurance company can extend those deadlines. For example, they can simply request additional information from the insured since the deadline to make a decision does not begin until all information requested is received or, even then, give written notice of up to a 45-day extension with an explanation in writing as to why. Those can be legitimate needs but also are areas ripe for exploitation.
An insurance company that continuously asks for more information—especially in succeeding parts rather than anticipating everything upfront—or waiting until the last day each time to meet a deadline or give notice of an extension, is often a tell-tale sign that something shady is going on behind the scenes. Requests for documentation should be reasonable as well. If your insurer has you jumping through hoops to provide an excessive amount of information for proof of loss (such as in connection with an inventory of contents or personal items), that can be a red flag.
A claim adjudication that takes more than 60 days total is one that should, in the ordinary circumstance of most losses, cause you concern. Policyholders in that situation often can expect some form of denial to be forthcoming, in whole or key part.
2. Additional inspections of the same thing
Beyond leveraging a proclaimed need for additional information to delay and extend deadlines, it is suspicious when an insurance company or TPA seeks access for a second (or sometimes third) inspection of your property to assess cause or the number of damages – particularly when it involves the same things already inspected before.
Insurance companies have substantial resources and maintain lists of all kinds of professionals throughout their geographic areas of operation to be able to schedule inspections to occur shortly after a loss, and usually all at once or in quick succession (unless it is a complex casualty or widescale disaster). An insurance adjuster who says they failed to anticipate some type of inspection until after the first is long completed or later seeks a second inspection of the same matter, is often indicative of one trying to find an exclusion to apply. A second inspection by a professional in the same field as the first—such as having a second structural engineer assess the cause of a collapse—is a strong indication the first reached a conclusion that the insurance adjuster or their bosses did not like (i.e., one in your favor usually), and they want a second opinion from someone perhaps more apt to reach the other result.
Many insurance companies also get in the habit of using the same professionals over and over for inspections. That may be necessary due to availability or other factors, but can be a sign of bad faith if it is an inspector who somehow always seems to reach a conclusion in the insurer’s favor – which an adjuster no doubt knows well when sending that person out to look and give a supposedly unbiased professional opinion.
3. Lack of an easily understood explanation for denial
Insurance companies operating in Texas are required to provide a written explanation for any denial of a claim, whether in whole or part. Such explanation should be clear and easy to follow, with reference to applicable portions of the policy. If a written explanation is not provided, varies materially from what you were orally told, or fails to make logical sense, that is a sign of a potentially deceptive practice in play.
Be sure to check the policy language referred to in any written explanation and request a copy of inspection reports to make sure all is accurately quoted (if quoted at all) or summarized as well. An explanation that misrepresents or misleads about the terms of your policy or conclusions of the inspector is rarely a simple mistake. (And a refusal to provide inspection reports is suspect itself, with some companies trying to claim that is proprietary or privileged information – which is not at all accurate).
Likewise, if possible, have someone uninvolved read the written denial to provide an immediate unbiased reaction to its logic. It should be clear, instantly understandable, and internally consistent. One lacking those features is often the sign of an insurance company stretching the policy language or conclusions of an inspector to fit their preferred result. The plain language of a contract always controls, but any ambiguity—by law in Texas—must be construed in favor of a policyholder. So lack of a clear explanation for denial is a red flag indicating your insurer may not be following the well-established rules. The same goes for an inspection report. Those should make their logical sense and be backed up by findings discussed in the report, such that a denial based on a deficient inspection report can be bad faith for not questioning the inspector’s analysis and conclusions. An insurance company does not act in good faith by sticking its head in the sand to rely on a substandard investigation or analysis.
4. Denials referencing multiple parts of a policy
Insurance companies are repeat players who are frequently involved in litigation over policy language and claims. Needless to say, unlike you, they have teams of lawyers at their beck and call at all times. Insurance professionals carrying out the ordinary business of claims processing are entitled to seek legal advice whenever needed, but typically only need to do so when there is a gray area or the payout is substantial.
As a result, when you receive a denial that has to reference many different parts of your insurance policy to explain why coverage does not apply, that is usually the work of a lawyer ghost-writing the explanation to find creative ways to get around plain language or facts in support of your claim. Insurance policies are complicated documents with disparate coverages, exclusions, and exceptions (and even exceptions to the exceptions). If your denial has to reference many different sections of the policy in excruciating detail to try and explain why a loss is not covered, then it is often a sign of overreaching. In that instance, you should consult with your own lawyer to determine if there was a good faith decision by the insurance company.
5. Attempts to blame the policyholder
Last but not least, good faith insurance practices require an insurer to actually assist the policyholder in complying with contractual terms in order to obtain benefits. There are several “conditions” required to be met by a policyholder before payment is due even on a valid claim, such as: providing all information reasonably requested by the insurance company or adjuster, give truthful statements under oath, provide written proof of loss when requested (including an inventory of lost property), allow inspections to occur as desired, take steps to prevent further damage to your property, and many others. There is really only one entirely up to the policyholder to know in the first instance though: provide notice to the insurance company as soon as possible after a loss occurs. Your insurance company is generally required thereafter to inform you of all requirements otherwise needed to fulfill the conditions for coverage or payment. That is part of the “special relationship” between the two parties. In other words, a policyholder is entitled to believe and trust in all those commercials and marketing used by the insurance companies: that insurance is there to help in the worst of times.
An insurance professional whose attitude or conduct starts to fall short of what should be a mutually cooperative endeavor at “adjusting” a claim together—which is literally defined as “to bring to a more satisfactory state” or to “settle”—may be acting in bad faith. Certainly, any threatening words by your adjuster are improper, but failing to promptly respond to questions or not providing information when asked is no less.
When your adjuster starts becoming hard to reach, that is often a sign that denial is forthcoming. A denial then based primarily on a failure of the policyholder to satisfy conditions is often trumped-up excuses. Without a doubt some policyholders effectively shoot themselves in the foot by not cooperating, being untruthful or not disclosing information they think may be harmful, or failing to meet deadlines they were informed about in the beginning. But many other times a denial based on conditions is a sign of bad faith conduct by the insurance company. The tactic in that instance is often to find some way to place blame on the policyholder, then try to appear reasonable by offering to nonetheless make a lower payout as a “compromise” settlement. If you were never clearly informed about policy provisions or such conditions, however, then your insurance company is acting in bad faith.
Other Potential Red Flags
In addition to the main causes for concern outlined above, there are many other types of conduct you should generally be mindful about in the process. Those include:
- Verbal additions to policy details that are not found in writing
- No investigation or only a cursory review before denial is issued
- Not providing payment in full after saying a claim has been accepted
- Unexplained or conclusory denials (often done in part while focusing on others)
- Reference to outdated laws
- Reference to the wrong part of policy
- Offering a payout far lower than makes sense to fully repair the property (often couched as being an initial determination that can be “supplemented”)
- Claiming others are responsible for the damage and should pay you
- Conditioning a resolution on settlement also of other claims made
- Pressuring an insured to use contractors or professionals in the insurance company’s preferred “network”
The law is flexible when it comes to dealing with bad faith and deceptive trade practices because bad actors are often some of the most creative in that regard. In general, anything that feels suspect to you is often worth having an attorney review.
Know Your Rights
The things discussed in this article are common tactics used by insurance companies and third-party adjusters acting in bad faith. Some are aimed at disqualifying you from compensation based on a technicality or ambiguity. Others are meant to extend the process as long as possible in hopes the policyholder will eventually drop the claim or accept something less than full value. When things always seem to end in another deadline extension, request for further documentation, or just plain feel “fishy” to you, then your gut is telling you something is wrong. Your gut is usually right.
To be clear, just because a claim takes time or has complications does not necessarily mean something improper is going on. But knowing the signs to watch for can help you catch dishonest practices before they cost you unnecessary additional time, stress, and out-of-pocket money. The laws in Texas prohibiting dishonest insurance practices exist for good reason … because it is a real problem. Lawsuits are filed every day against insurance companies and some result in multiplied damages as a remedy for bad faith or deceptive conduct. Being able to recognize when you may be a victim is the first step towards receiving full compensation.
The next step is to schedule a consultation with an experienced commercial litigation attorney who can look at your situation objectively and help you understand whether taking legal action may be right for you.
Wright Commercial Litigation regularly offers to take cases on a contingency or hybrid fee basis. Contact the firm to set up a time to discuss.