Bad Faith Insurance and Claim Denials

Fires, accidents, injuries, illness, crime and deaths are all a part of life. The questions that have to be asked in the event of a tragedy are numerous.

“How are we going to pay for the medical bills?”
“What is my family going to do now that I can’t work?”
“How are we going to pay for reconstruction of the house?”
“How can I get to work if my car is wrecked?”
“Where is the money for all of these expenses going to come from?”

People buy insurance so that all of those questions will be answered for them. If you’ve paid your monthly premiums, the answer should be: “Don’t worry. We have you covered. That’s what you pay us for.”

Unfortunately, the insurance companies have some questions of their own.

“How did our investments do this year?”
“Can we report record profits to our stockholders?”
“How can we fulfill our obligations to our policyholder as cheaply as possible?”
“Is there a loophole or delaying tactic that we can use to make the policyholder simply give up?”
“Is there anything in the policy that will let us deny the claim entirely?”

Too often, the answer that the insurance companies have for policy holders is: “We’re sorry. You have our sympathies, but we can’t help you.”

The process of denying a claim even though the policy holder faithfully paid the monthly premiums is called Bad Faith Insurance, and it’s more prevalent than you think.

Big Insurance, Big Business, Big Money

Insurance companies will paint a very bleak portrait when they know the cameras are rolling. They routinely raise premium prices, claiming that frivolous lawsuits and rampant claim abuse are leading them down the road to bankruptcy. A news item from 2004 is a typically alarmist and misleading statement:

8% of medical malpractice awards now exceed $1 million (double the amount from five years ago). (Health Tracking, The Medical Malpractice ‘Crisis’: Recent Trends and the Impact of State Tort Reforms, January 21, 2004)

Insurance companies have been increasing the cost of malpractice insurance premiums by an average of 10 per cent a year since 1999. Even an 8% level of verdict awards exceeding $1 million, payouts to plaintiffs are a drop in the bucket when compared to the billions of dollars that hospitals and doctors are paying each year in malpractice premiums.

Despite soothing jingles and flashy ad campaigns to the contrary, the main purpose of insurance companies is to make tremendous amounts of money. The profit margins are staggering. Life and health insurers gained some of the highest profits on record in early 2004, including Continental Assurance ($303.1 Million), Pacific Life Insurance ($523 Million) and Insurance & Annuity Association of America ($247.2 Million.) That’s over $1 Billion in profit in the FIRST QUARTER of 2004. And this is before they factored in their returns on their investments.

Property and Casualty insurers had a profitable 2004 as well. GEICO boasted in their annual report that they had provided $970 Million for the coffers of its parent company, Berkshire Hathaway, Inc. Auto insurance giant Progressive posted a $1.26 Billion net income in 2004.

Anyone who has driven home from work on our crowded highways can tell you that there aren’t any less accidents. Anyone who has heard the blaring sirens of fire engines at night or has read the crime reports in the local newspapers can tell you that the rates of fires and criminal activity hasn’t dropped significantly. Anyone who lived through or saw the results of Hurricane Katrina can tell you that natural disasters haven’t suddenly stopped happening. So where are all these profits coming from?

The first and obvious source of profit is from raising the prices of premiums. The second source of revenue is investment. Insurance companies routinely turn a large percentage of their received premiums into stocks and bonds while holding onto a portion for paying claims. The third stream comes from claim denial. And they don’t even have to do it that often to make an enormous profit. By simply denying as little as 2% of their claims every year, an insurance company could make upwards of $1 Billion a year. If you file a claim without fully understanding your rights as a policyholder, and if the insurance company doesn’t expect you to put up a fight, what’s to keep them from filing you and your family into that 2% category?

Denial Methods and Tactics

There are several insurance companies out there that have sterling reputations. They honor their obligations to pay claims, and they do so in a consistent and prompt fashion. But for every one honorable and ethical insurance company out there, there is another that will do whatever it takes to protect their profit margins.

Procedural Delays

Instant claim denials rarely happen. Instead of immediately saying “no,” insurers rely on several tried and true methods of delay. The delay tactic has two purposes; the first is to give them time to find any reason to either not pay you as much as they are contractually obligated or to not pay you at all. The second purpose is to frustrate you to the point where you will either give up or accept a “nuisance” or “cost of defense settlement that is far below what you expected or needed. These settlements invariably come with waivers that forfeit any further claims that the policyholder might have. The waiting game is a fairly easy one for them to win. They have lots of time and money, while the policy holder (who is recovering from a traumatic event) probably has neither. Hurricane Katrina brought many of these delaying tactics out into the open.

Insurance companies are legally required to pay claims in a prompt manner. Most policy holders are unaware of this simple fact and have actually accepted delays in payment as standard operating procedure.

Second Opinions

As a worst-case example, State Farm is notorious for using “experts” to give a false air of legitimacy to claim denial. For medical coverage, State Farm often uses what is called a “paper review,” which is when the insured’s medical records are shipped off to an “impartial” doctor or medical expert. The job of the person reviewing the records is to find any “pre-existing” conditions which, according to the terms of the policy, the insurer is not liable for. The doctor is not even required to physically examine the patient. In 2000, it came to light that State Farm was not even using real doctors for their reviews, but rather creative writers who had a database of stock answers that were inserted into the final reports.

Tainting Public Opinion

State Farm engages in such behavior when it comes to its fire insurance coverage. The International Association of Arson Investigators published a twenty page book that could act as a guide in what to look for in order to prove that arson had been committed. State Farm revised it, reprinted it, and distributed it to police officers, prosecutors and firefighters nationwide. The revisions, which were studded with inaccuracies and myths about arson, were made not out of any concern for the public good, but rather to institutionalize misconceptions about arson, which would make it easier for them to deny claims. This also has the unfortunate side-effect of making people with legitimate claims look like criminals.

Delay of Treatment or Suggesting Less Effective Treatment

Insurers have been known to bitterly contest visits to medical specialists while denying or delaying the funds for their payment. This often exacerbates the condition of the insured, causing unnecessary hardship. Insurers will also recommend cheaper and less effective treatment in order to save money. Suggesting less effective treatment will also bolster the insurer’s argument that they are living up to their obligations.

Biased Investigation

If there is a substantial amount of money at stake, insurers will often hire private investigators or “experts” to look into your case, often with the intent of uncover damaging information.

Unreasonable Documentation

Insurers will often demand records and documents from policy holders that are practically impossible to obtain. Car maintenance records from before the policy holder’s purchase of the vehicle, medical records dating back decades or documentation that is irrelevant to the claim of the insured have all been used to delay payment.

Most of the victims of claim denial or inferior settlements are put in this position because they don’t understand that an insurance policy is a legally binding contract that goes both ways. Sending in premiums every month guarantees that a policyholder will be financially taken care of should a legitimate need arise. Any delays or manipulation of the facts of the case should not and must not be tolerated. Charles Boyk has twenty years of experience in handling contested insurance claims, and knows all the methods of delay and denial used by big insurance. There is absolutely no reason that an insurance company shouldn’t live up to their end of the contract, and Charles Boyk can help make sure that they do.

If you or your loved ones are experiencing difficulties in getting an insurance claim fulfilled, call the law offices of Charles Boyk today.