Coverage Denial

By September 21, 2021 September 29th, 2021 In The News

What can happen when an insurance company says “no” or “denied” to a claim?

Real life stories.

A doctor leaves one medical practice to start at another. He then gets sued for malpractice related to treatment he provided while at the first practice. When he advises his prior insurance company of the lawsuit, they deny the claim.

A county employee with disability insurance is diagnosed with Multiple Sclerosis. She files a claim for benefits, which the insurance company initially grants. But after a year, she is informed that her that her claim is “under review.” Eight months later, her benefits are terminated.

These are real life stories, and just a small example of what thousands of consumers experience every year when the benefits they paid or worked for and relied upon are not there when they need them the most. When this occurs, many denied claimants simply give up and reconcile themselves to dealing with the consequences, which can be financially and personally ruinous. Others, sensing the underlying unfairness, will attempt to find recourse.

While some rejected claims may indeed be unsupportable and properly denied, there are others that are denied unfairly or without a meaningful investigation or explanation. Additionally, even when an insurance company has a sound basis to deny a claim, if its review process or communication with the claimant is not exemplary, the consumer may feel wronged and the company may expose itself to legal action.

It is therefore incumbent upon insurance companies to know and fully comply with their legal responsibilities when evaluating claims, and it is in the best interest of consumers to know their rights.

What’s in an insurance policy?

Every insurance policy is, quite simply, a contract – a binding agreement between the insurance company, the policy-holder, and the policy’s intended beneficiaries, the “insureds.” Insurance coverage is generally governed by the principles of contract law, but it is also heavily regulated by statute and subject to legal requirements which may supersede the terms of an insurance policy or an insurance company’s interpretation of those terms.

Every party to a contract has an obligation to fulfill its commitments as expressed in the contract. For policy-holders this means that they must make timely premium payments, provide truthful information, and cooperate with the insurance company in its investigations.

What are Insurers’ Obligations?

For insurance companies the obligations are more exacting.

The law recognizes a duty of “good faith” implicit in all contractual relationships, but this duty is heightened when applied to the conduct of insurance companies in assessing claims arising under their insurance policies. When an insurance company wrongfully denies a claim, fails to communicate with the affected parties, or engages in a poorly run investigation, it may be subject to a variety of legal attacks, many of which will be based upon the contention that it acted in “bad faith.”

What can constitute bad faith?
The following are just a few examples of what courts have found to be evidence of bad faith by insurance companies in connection with claim denials:

  • Delay in investigating the factual basis of a claim.
  • Delay in communicating the denial of a claim.
  • Failure to advise a claimant of the right to submit material in support of the
  • Failure to make a physical inspection or schedule a medical examination during
    an investigation.
  • Failure to investigate another fact-finding body’s conclusions favorable to the
  • Failure to advise a claimant of the status of an on-going investigation.
  • Deliberately providing misinformation about the extent of a claimant’s appeal
  • Arriving at a denial that is unsupported by the evidence gathered during the

Additionally, the law requires that insurance companies give written notice of changes in policy terms and in material changes in coverage, including an insurance policy’s termination. If these notice requirements are not complied with, an insurance company can literally be compelled to provide coverage due to its own noncompliance.

Moreover, terms and phrases unique to the insurance industry are often specifically defined under relevant statutes. Insurance companies frequently utilize the same terms and phrases in their insurance policies, indicating related rights and responsibilities, applying their own definitions. If these definitions in any way narrow the definitions that are set forth in statutes or confer less rights upon consumers that what is acknowledged in a statute, the insurance company’s definitions will be unenforceable.

The evidence of an insurance company’s noncompliant or wrongful acts or omissions is often hiding in plain sight within the documents generated and sent to a claimant during an investigation by the insurance company. When that is the case, a carefully worded and precise communication to the insurance company may be sufficient to convince it to reverse course.

Sometimes however, a wrongfully denied claimant will have to dig deeper. It may be necessary to discover the next layer of communications occurring within the insurance company’s claims unit, including obtaining electronic data, learning the insurance company’s policies and procedures for handling claims, and taking depositions under oath of personnel involved in the claim review. In order for this level of investigation to take place, a claimant will have to first file suit.

Insurance companies that wrongfully deny claims or mishandle the claim investigation process can face lawsuits alleging bad faith, breach of contract, unjust enrichment, consumer fraud and more. While it would not make sense for insurance companies to habitually grant even the most dubious of claims out of fear of getting sued, carelessness and kneejerk denials create significant peril and can be costly and draining to an insurance company’s operations. Wrongfully denied claimants can be awarded actual damages, punitive damages, attorney’s fees and costs of litigation, as well as injunctive and declaratory relief.

An ounce of prevention is worth a pound of cure.

In the end, any consumer with a legitimate claim would much prefer their insurance company pay the benefits to which they are entitled, rather than face a denial followed by a complicated and drawn-out lawsuit. Similarly, any insurance company would be well-advised to rigorously follow the mandates of the law when evaluating claims. Knowing the law and going “by the book” is far preferable to the drain of expensive, time-consuming, and often self-defeating litigation.

Either way, an ounce of prevention is worth a pound of cure.

Whether you are an insurance carrier interested in mitigating your legal risk, or a consumer wrongfully denied an insurance benefit, the lawyers at Devine Timoney Law Group are uniquely positioned to give you the guidance you need to ensure your interests are protected.

By: Dean Hafeez Malik,Esq. [email protected]