What Constitutes ‘Bad Faith” in Insurance Claims?
Insurance companies have a duty of good faith to their policyholders in all claims, but acting in bad faith is a serious breach of their duty to handle insurance claims.
Policyholders are expected to disclose relevant health information and file claims and assess their losses accurately. But at the same time, insurers must act with transparency and compensate their policyholders in a timely and fair manner.
It’s important for policyholders to recognize when an insurer is acting in bad faith in order to take steps to protect their rights.
Bad faith actions
It’s considered bad faith when an insurer does not fulfill its insurance contract obligations or engages in malicious or arbitrary conduct that unfairly disadvantages the policyholder. Examples include:
- Denying a claim without a valid reason
- Failure to investigate a claim thoroughly
- Delaying a claim’s payment with no legal reason
- Making false statements to the policyholder or their representatives
- Refusing to return calls or emails
- Offering an unreasonably low settlement amount
Significant damages awarded
Bad faith actions by an insurer can be dealt with through a lawsuit for breach of contract or breach of the duty of good faith. Significant damages, including damages for mental distress or aggravated damages, can be awarded to an insured if it’s proven an insurer was not acting in good faith. The insurer may also be required to pay punitive damages that punish it for its actions.
The Ontario Insurance Act does not give a specific definition of “bad faith” by insurers but does outline their general duty to policyholders to act in good faith when assessing claims and paying out benefits.
According to Ontario court cases, bad faith can be established when an insurer acts unreasonably or unfairly in denying, delaying or underpaying a claim. This can include failing to properly investigate a claim, denying it without sufficient evidence or unreasonably delaying payment.
Insurers are obligated to provide policyholders with a clear and concise explanation of their coverage and what steps they must take to make a claim.
Protect yourself
Policyholders should carefully review their insurance policies and understand their rights and obligations so they can protect themselves against bad faith.
If a claim is denied or delayed, policyholders should ask their insurer to clearly explain why and ask it to provide all relevant documentation.
If you believe that your insurer has acted in bad faith, you should seek legal advice to examine your rights. Contact us today to arrange for a free consultation.