When you file an insurance claim, you expect the insurance company to honor the policy in good faith. Unfortunately, that is not always the case. In the legal context, underpayment vs denial: two faces of insurance bad faith illustrates how insurers may act unreasonably to avoid paying the full value of valid claims.
Both tactics—either denying a legitimate claim or underpaying it—can cause financial strain, emotional distress, and lead to serious legal consequences. Similarly, insurance bad faith claims can often damage one’s long-term sustainability.
What Is Insurance Bad Faith?
Insurance bad faith occurs when an insurance provider fails to fulfill its contractual obligations under the insurance policy.
By law, insurance companies must act in good faith and fair dealing when evaluating, processing, and settling claims. Any actions that intentionally delay, underpay, or unfairly deny a valid claim may constitute bad faith.
This includes both first-party and third-party claims, where the insurer is expected to resolve legitimate claims within a reasonable time frame. So, what does the law say about bad faith claims?
Denial of Claims: A Common Form of Bad Faith
One of the most blatant forms of bad faith is an outright insurance claim denial without a reasonable explanation or a thorough investigation. This includes several types of insurer misconduct:
1. Ignoring Medical Records or Documented Injuries
Failing to review or consider relevant medical records, test results, or treatment notes when processing a claim is a red flag.
When an insurer overlooks critical evidence such as doctor’s evaluations or hospital reports, it may be avoiding its duty to faithfully pay claims.
2. Claiming Exclusions That Don’t Apply
Some insurance adjusters may misapply policy exclusions that do not relate to the actual claim details. By misinterpreting the insurance contract, insurers may wrongly avoid making claims payments, even when policy coverage clearly applies.
3. Failing to Provide a Written Explanation
Insurers are legally obligated to supply a timely, reasonable explanation for any claim denial. A vague or absent written explanation undermines the transparency of the claims process and may demonstrate unfair treatment.
Underpayment of Claims: A Subtle Face of Bad Faith
Not all bad faith tactics involve outright denial. In many cases, insurers pay something, but not enough. However, this is still an insurance bad faith case that requires legal assistance.
The bad faith lawsuit and the insurance process might become easier to understand if you comprehend underpaid claims.
1. Lowball Estimates for Damages
Underpayment may take the form of lowball repair estimates, undercompensation for medical expenses, or insufficient payment for lost wages. These underpaid claims often discourage claimants from pursuing full compensation.
2. Omitting Benefits Within the Policy
A bad faith insurance case may arise when an insurer ignores or omits covered benefits within the insurance policy.
For example, failure to reimburse physical therapy or post-operative care costs breaches the contractual obligations of the insurance provider.
3. Delaying Payment Without Justification
Insurers often engage in delaying payment strategies by requesting redundant information, reassigning claims adjusters, or claiming they need further investigation without cause. These bad faith practices can leave claimants in limbo without adequate financial support.
If you still need more information, here are red flags that indicate your insurance company is practising bad faith
How Insurers Are Supposed to Behave With Underpayment Vs. Denial
Under most state laws, insurance companies are expected to settle claims in good faith. Key responsibilities include:
1. Conducting a Thorough Investigation
A thorough investigation, including analysis of all claim details, consultations with experts, review of the insurance policy, and interviews with involved parties, must support a valid claim. Skipping or rushing this step can constitute bad faith.
2. Making Timely Payments
Once liability is confirmed, the insurance carrier must make full payment promptly. Unreasonable delays in the claims process are grounds for a bad-faith insurance claim.
3. Providing Clear Communication
Policyholders are entitled to consistent updates and honest explanations. Insurers must maintain fair dealing by responding to queries, sharing updates, and explaining decisions.
So, next time you wonder, “Can I sue my insurance company for delaying claims“? Know that you can.
Legal Grounds for Pursuing a Bad Faith Claim
To pursue a bad faith insurance lawsuit, a claimant must usually show:
A Valid Insurance Claim Was Filed
The insured must demonstrate that their insurance claim meets the coverage requirements of their insurance policy. A denial or an underpaid claim without basis strengthens a contract claim.
The Insurer’s Actions Were Unreasonable
Examples of unreasonable conduct include unreasonable denial, underpayment, or a failure to resolve legitimate claims. Courts evaluate whether the insurer’s actions reflect good faith.
Resulting Harm to the Claimant
Claimants must show they suffered actual damages, such as unpaid bills, delayed medical treatment, or emotional distress. These impacts must be linked to the insurance company’s mishandling of the claim.
Holding Insurers Accountable in Court For Bad Faith Claims
A successful bad faith claim may result in:
Recovery of Actual Damages
Claimants can receive the unpaid portion of the original claim, plus any related costs like medical expenses, lost wages, and out-of-pocket losses.
Reimbursement of Attorney Fees and Court Costs
Most jurisdictions allow recovery of attorney fees and court costs in bad faith insurance claims, leveling the field between policyholders and large insurers.
Awarding Punitive Damages
If the insurance company acted maliciously or knowingly violated state laws, courts may award punitive damages to punish the company and prevent future misconduct.
The Role of a Bad Faith Insurance Lawyer
An experienced bad faith insurance lawyer is critical in:
- Analyzing the insurance contract and its legal obligations
- Identifying bad faith insurance practices by the insurer
- Preparing a strong case using detailed records and critical evidence
- Pursuing legal action against their own insurer or insurance provider
- Seeking fair compensation under the law
Legal representation ensures that legitimate claims are not ignored or undervalued.
Why Bad Faith Happens: Systemic Issues in the Industry
Insurers often prioritize profits over people. Some claim insurance companies use software algorithms or quotas for claims adjusters.
These software encourage bad faith practices like claim denials or chronic underpayment. Oversight varies by state, which is why pursuing legal action is sometimes the only path forward for consumers.
Underpayment vs Denial: Two Faces of Insurance Bad Faith in Focus
The phrase underpayment vs denial: two faces of insurance bad faith accurately describes how insurance companies exploit policy language, delay tactics, and limited communication to avoid paying.
In individual claims adjusters’ efforts to minimize costs, they often disregard their obligation to resolve legitimate claims.
Bottom Line
Whether it’s a small insurance claim or a substantial third party claim, the impact on the claimant is often severe—delayed recovery, mental strain, and financial instability.
Fight Underpayment and Denial with BLG
If your insurer refuses to pay or unreasonably delays or reduces your compensation, you may be the victim of insurance bad faith.
Reach out to the Bourassa Law Group today for a free consultation. Our experienced attorneys can determine whether you have a case, explain your rights, and help you seek the compensation and justice you deserve.
Don’t let bad faith insurance tactics go unchallenged—let us hold your insurance company accountable.
1-800-870-8910