Less Than Good Faith Insurance Practices Every Policyholder Should Be Aware Of

When disaster strikes, many people turn to their property insurance policy for support. Unfortunately, some policyholders end up facing a maze of deceit instead. Insurance Carriers are obligated to handle claims under the legal doctrine of "Good Faith & Fair Dealing.” Less than good faith insurance practices can turn a straightforward claim into a frustrating experience, leaving you feeling vulnerable and cheated. Recognizing these tactics is crucial for anyone wanting to safeguard their investment and peace of mind.

Less than good faith behavior shows up in various ways, from delayed claims processing to unfair denials. Insurers might offer a settlement that’s far too low or misinterpret your coverage, all while expecting you to jump through hoops for documentation. By highlighting these questionable practices, we hope to equip you with the knowledge needed to challenge the system and reclaim your rightful compensation. After all, understanding the rules is a significant part of navigating this high-stakes situation.

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Recognizing Less Than Good Faith Insurance Practices

Less than good faith insurance tactics can take many forms, all of which aim to delay, deny, or underpay legitimate claims. These practices are not only frustrating but can leave property owners financially vulnerable.

1) Delayed Claim Processing and Unnecessary Investigations

One of the most common less than good faith strategies involves delaying claim processing. Insurance companies may request excessive documentation, extend investigation periods unnecessarily, or fail to provide timely responses. These tactics put financial strain on policyholders and often lead to frustration and settlement desperation.

For example, a commercial property owner who files a claim for water damage may experience weeks of delay before an adjuster is assigned. Even after the inspection, the insurer may request redundant documentation to justify further delays. These stalling tactics force policyholders to either wait indefinitely or accept lower settlements to expedite repairs.

According to a report, insurance claim delays often result in policyholders receiving significantly less than they are entitled to. This study highlights the prevalence of such practices and the need for policyholders to remain vigilant.

2) Lowball Settlement Offers and Unjustified Claim Reductions

Insurance companies frequently offer settlements that are far lower than the true cost of damage repairs. By underestimating damage assessments or using biased adjusters, insurers minimize payouts, hoping policyholders will accept these offers out of urgency or lack of knowledge.

Consider a multifamily housing complex that experiences extensive fire and smoke damage. The insurance company might only offer compensation for surface-level repairs while ignoring deeper structural and air quality issues. In cases like these, policyholders must obtain independent damage assessments to ensure fair compensation.

3) Misrepresentation of Policy Coverage

Another troubling less than good faith insurance practice is misrepresenting policy terms to avoid paying out claims. Insurers may deliberately interpret vague policy language in their favor, leading to wrongful denials.

For example, a business owner filing for water damage caused by a plumbing failure might be told their policy does not cover such incidents, despite clear wording stating otherwise. This is where understanding policy language, as experts like Bill Wilson emphasize in When Worlds Collide, becomes crucial. Wilson argues that policyholders must challenge insurers’ interpretations to prevent unfair denials.

4) Denying Claims Without a Valid Reason

Claim denials without reasonable justification are a hallmark of less than good faith insurance practices. Insurers may deny claims by citing policy exclusions that do not apply, misattributing damage to pre-existing conditions, or simply refusing to provide a valid reason.

A case in point is a hospital facility that suffers wind and water damage from a storm. Despite providing all necessary documentation, the insurance company denies the claim, insisting that the damage was pre-existing. Without proper advocacy, such denials can leave policyholders without the necessary funds for repairs.

Jay M. Feinman, in Delay, Deny, Defend, explains how these tactics serve to wear down policyholders, leading many to abandon valid claims or accept unfavorable settlements.

5) Excessive Documentation Demands

Insurance carriers often employ the tactic of requiring excessive or redundant documentation to frustrate claimants. While it is reasonable for insurers to request proof of loss, some demands go beyond what is necessary and are designed to create barriers to claim approval.

For instance, a commercial contractor filing a claim for vandalism may be asked to submit multiple versions of the same repair estimate, tax records, and unrelated financial documents. These unnecessary hurdles extend the claims process and can lead to claim abandonment or reduced settlements.

How Policyholders Can Protect Themselves from Less Than Good Faith Insurance Practices

While less than good faith insurance practices are common, policyholders can take proactive steps to protect their claims and ensure fair treatment.

• Thorough Documentation: Keeping detailed records of damages, communications with insurers, and all submitted documents helps create a strong case against unfair denials or delays.
• Independent Damage Assessments: Hiring third-party professionals, such as licensed public adjusters, can provide accurate damage estimates and counter insurer underpayments.
• Understanding Policy Language: Reviewing policy terms carefully can help policyholders recognize when insurers are misrepresenting coverage.
• Seeking Professional Advocacy: Public adjusters, such as those certified through the IICRC in Water Damage, Structural Drying, Fire Damage, and Smoke Damage, specialize in assisting policyholders with fair claims settlements. Consulting professionals can make a significant difference in claim outcomes.

The Importance of Holding Insurers Accountable

Less than good faith insurance practices are an unfortunate reality in the industry. By delaying claims, underpaying settlements, misrepresenting policies, and denying valid claims, insurers often leave policyholders struggling to recover from property damage losses. Awareness and proactive steps, such as seeking professional assistance, can help policyholders fight back against these tactics and secure the compensation they rightfully deserve.

If you believe your claim is being handled unfairly, don’t let less than good faith practices stand in your way. Velocity Public Insurance Adjusters is here to help you navigate the complex world of insurance claims with confidence. Schedule a free claim and policy review today.