Understanding Bad Faith Life Insurance Claims in California

When someone you love dies, there are no words that can lift your heart. There are never enough hugs to staunch the tears. Money may feel like the last thing you should care about, but it can be crucially important to your future.  For example, if your spouse was the breadwinner, how are you going to afford the mortgage or pay for the kids to go to college? This is the entire purpose for life insurance. In a perfect world, your loved one’s life insurance policy will quickly and easily pay you a benefit that can help keep you and your family financially afloat. Unfortunately, life insurance companies will always try to find a reason not to pay. In some cases, they may operate in bad faith to delay or deny your claim. If this happens, you may be entitled to your full life insurance benefit as well as additional compensation.

What Is Life Insurance Bad Faith?

Every life insurance policy contract includes a presumption of good faith and fair dealing on both sides. This means that the insurer must make every reasonable effort to fulfill their obligations within the contract and not attempt to harm your chances of receiving benefits from the policy. The insurer cannot lie to you, cannot overpromise aspects of the policy, or unfairly deny your claim.

What exactly does bad faith look like? Here are five of the most common ways a life insurer can act in bad faith.

Canceling a Policy Retroactively

A life insurer will be more than happy to accept your premium payment every month, but when it comes time to actually pay out, the carrier may change its tune. A life insurer has the right to investigate all claims, but in some cases, they go too far. Instead of trying to validate your claim, they often comb through the policy and your paperwork looking for reasons to retroactively cancel the policy.

It can be shocking, especially to grieving family members, to find out that a life insurance policy was retroactively canceled because a loved one failed to sign one of many forms or accidentally misspelled their name. An insurer must act with proper cause before denying a claim. If they do not, then you have a bad faith claim.

Unreasonable Delay

A life insurer will almost always perform an investigation before validating a claim. The carrier will ask for things like your loved one’s medical records and proof of death to make sure no policy exclusions apply and that there are not any misrepresentations on your loved one’s application. This is all normal, and you should expect a wait before receiving your benefit.

Some insurers, however, will delay on purpose. They will try to stretch out the time of the investigation in the hopes of preventing a payout.

If there is a delay in payment, the delay must be reasonable and stem from a genuine dispute that the insurer makes a good faith effort to resolve in a timely manner. If the insurer drags its feet too long, especially if there is no dispute, then the delay is unreasonable, and they may be vulnerable to a bad faith claim.

False Policy Claims

Many life insurance agents will talk a big game when they are trying to sell you a life insurance policy. As a consumer, you should always carefully review your life insurance contract before signing. Most of us do not do this (there is so much fine print!), and in rare cases, you may discover that what your insurance agent made promises that your policy does not actually fulfill! An agent can misrepresent all kinds of things, including the size of the benefit, what is covered, what is excluded, and more.

California protects you against any misrepresentations an insurer makes. This includes misrepresentations by the agent who sold you the policy, claims on the insurer’s website, and their advertising claims. California law says that your life insurance policy cannot be denied as a result of false or misleading claims by an insurer, or any representative of the insurer.

Last Minute Policy Lapse

In so many instances, a policyholder will faithfully pay their policy premiums every month for years or for decades. Then they get sick or face a medical emergency. The last months of their lives might be spent in the ICU, hospice, or a nursing home. Life is upended, and it is no surprise that during these physically and emotionally difficult times things fall through the cracks, including the bill for life insurance premiums.

A life insurance company is not sympathetic to the fact that your spouse forgot to pay her premium because she was dying of cancer. The insurer will use any excuse, including failure to pay a premium, to cancel a policy and deny a payout.

Fortunately, California has stepped up to protect consumers in this situation. Our state has put into place specific statutes that force insurance companies to send notices about lapsed payments and offer grace periods.

If a life insurance policy does not provide you with the proper notice or honor the mandated grace period, they have acted in bad faith.

Bad Faith Policy Exemptions

Every life insurance policy includes certain policy exemptions. For example, they will not pay out in cases of suicides or deaths that occur during the commission of a crime. These are reasonable exemptions, but the insurance company can wander into bad faith territory when they attempt to use an exemption when it does not apply in order to deny a claim. These exclusions are also typically written very broadly and ambiguously in order to give the insurer as much flexibility as possible in applying exemptions.

An insurer can be held liable for bad faith if the carrier, for example, claims that your loved one committed suicide when the evidence does not support that narrative. Another example would be to deny a claim when your loved one was killed in an auto accident because she was driving slightly above the speed limit and therefore “committing a crime.”

Suing for Bad Faith

Dealing with the death of a loved one is hard enough. Life insurance companies that act in bad faith can make this difficult time even worse. The threat of losing a benefit you are relying on to stay in your home and feed your family can be terrifying!

When you sue for bad faith, your attorney can ask for the insurance company to pay out your loved one’s entire benefit as well as additional compensation for attorneys’ fees and pain and suffering. If the insurance company’s behavior is especially egregious, you may also be able to receive consequential and punitive damages.

If you feel that an insurer is giving you the “run around” and you live in San Diego or Southern California, contact Saba Law to schedule a consultation with an attorney who specializes in insurance bad faith lawsuits.