Article Reviewed by a licensed insurance professional: Sam Meenasian (CA dept of insurance license #0F75955).
Estimated reading time: 4 minutes
Key Takeaways
- Insurance companies sometimes act unreasonably, denying claims or delaying responses, which may lead policyholders to consider legal action.
- The ability to sue depends on state laws and policy specifics; determine if the insurer acted in bad faith by reviewing their handling of claims.
- State laws may offer protections, including good-faith obligations that vary by location; consult an attorney for specific rights.
- Document everything and understand policy deadlines before pursuing legal action; many bad-faith cases settle out of court, but some do go to trial.
- Consult USA Business Insurance to ensure your policy meets requirements and avoid potential issues with claims.
You expect the insurance company you pay every month to come through for you in times of trouble. You pay on time, so you’re sure you’re covered if something covered under your policy happens.
But that’s not always the case.
Sometimes your insurer may refuse to pay out your claim. Or they may act slowly. Sometimes, a less-than-credible company may delay getting back to you or reviewing your claims.
That’s enough to upset any paying policyholder. But can you sue?
The Truth About Your Ability to Sue
In many situations, you can file a lawsuit, but whether you may or may not win depends on policy requirements and wording. deadlines, and state law.
The more difficult question, however, is whether you will be successful.
depends on whether the insurance carrier’s handling of the claim was reasonable under the circumstances and consistent with state law.
What is Bad Faith?
Generally means an insurer handled your claim unreasonably (for example, failing to investigate, misrepresenting coverage, or denying benefits without a reasonable basis), measured under your state’s standards.
You can look for things like this:
- Repeatedly asking you for information you already gave
- Denying claims you know are covered without a clear justification
- Not getting back to your calls
- Pressure tactics
Things like that can be red flags to look out for.
State Laws Have Your Back
Most states impose good-faith/fair-dealing obligations on insurers through common law and/or statutes/regulations, but the specific rights and remedies vary by state. Some states, including California, recognize an implied covenant of good faith and fair dealing in insurance contracts. Other states view it as part of the common law emphasis on good faith and fair dealing.
Even if your insurer violates a claims-handling regulation, your state may treat enforcement as administrative (handled by the department of insurance) rather than a private lawsuit—so the availability of a private right of action depends on your state.
Depending on the state and the claim type, you may also be able to seek consequential damages, emotional distress damages, attorney’s fees (sometimes), and, in rare cases,s punitive damages.
Just to name a few. It really depends on what state you’re in. Always consult an attorney if you have questions about the law.
How the Process Works
Before suing, it’s smart to document everything and review any policy deadlines, claim reporting period (claims made vs occurrence made), or required steps (like proof-of-loss forms or internal appeals). A demand letter is common, and some states require special pre-suit notices for certain bad-faith claims.
Many bad-faith suits resolve through settlement once the insurer realizes its conduct will be scrutinized. But they can go on trial when necessary.
Policyholders are not powerless when an insurer mistreats them. There is a structured legal process to hold carriers accountable and recover money they should have paid in the first place.
USA Business Insurance Can Help You Avoid This Situation
To avoid this situation altogether, check with USA Business Insurance, which could check your insurance requirements, policy wordings, and endorsement requests.
