When the insurance company unfairly withholds or delays payment or processing without just cause, a delayed insurance claim can become an act of bad faith since it violates the contractual rights of the policyholder. Bad faith results from an insurer failing its legal duty to behave in the best interest of its policyholder, which covers fair, honest treatment of claims.
Fair dealing and a responsibility of good faith bind insurance businesses. Based on the terms of the insurance policy and relevant legislation, they must thus investigate, assess, and resolve claims promptly. Although delays for valid reasons—such as the need for more research or obtaining more data—should be justified and shared openly to the policyholder. For instance, a delay could be warranted while the insurer compiles required data if the claim calls for complicated issues or contested responsibility. Bad faith could result, though, if delays get out of control or are exploited to force the policyholder to accept a less settlement or drop out entirely from the claim.
Typical signs of poor faith include an insurer failing to clearly explain the delay, often asking pointless or duplicate evidence, not answering questions, or purposefully misreading policy language to evade payment. Should the insurer neglect to satisfy state-mandated timeframes for handling claims without a valid justification, it may also point to bad faith. Many states have particular rules defining time restrictions within which an insurer must acknowledge, look at, and either approve or reject a claim.
Bad faith can also result from an insurer failing to make a good faith attempt to settle the claim or from arbitrarily withholding payment once responsibility has been shown. Sometimes insurance companies might postpone the claim in order to push the policyholder knowing that the individual would be in need of quick reimbursement for lost income, medical costs, or repairs, or financial stress.
Policyholders may have legal action against their insurer when a delay converts into bad faith. In rare situations, bad faith claims might result in the insurer responsible for punitive damages, attorney expenses, and emotional suffering in addition to the initial claim.
An insurance claim becomes bad faith overall when the insurer unfairly delays or blocks the claim process without a good reason, therefore violating their obligation to behave fairly and in good faith toward the policyholder.