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Over the years, we’ve seen our fair share of insurers who sidestep their obligations and use bad faith tactics to put policyholders at a disadvantage. Our expertise in insurance recovery litigation allows us to see through these tricks, and we’re here to help businesses fight back.
What Is Bad Faith Insurance?
Commercial insurance protects businesses against unanticipated financial losses, whether from property damage, liability claims, or operational disruptions. “Bad faith” refers to an insurer’s dishonest actions during the claim process. Refusing or failing to honor their obligations often leaves businesses struggling with unpaid claims, reduced payouts, excessive delays, and other serious consequences. Some bad faith practices can even cause business operations to come to a screeching halt.
For these reasons, policyholders must recognize the signs of bad faith insurance claims and know how to respond.
What All Policyholders in Arizona Should Know
According to the Arizona Supreme Court, when an insurer does not act in good faith, the insured may seek damages beyond the terms outlined in the contract. These laws allow policyholders to pursue legal action against the insurer for the bad faith practices listed below.
Common Types of Bad Faith Issues in Commercial Insurance
FR Law Group has successfully represented businesses of all sizes in commercial insurance bad faith disputes, including:
1. Unreasonable Delay in Claim Processing
One of the most common bad faith practices in commercial insurance is the unnecessary delay in processing claims. While the complexity of certain cases may justify delays, insurers are still required to handle claims in a timely manner. When an insurer deliberately drags out the process without a valid reason, it places undue financial stress on a business that relies on quick claim resolutions to recover from losses.
Signs of unreasonable delay in claim processing may involve prolonged investigations without justification, excessive requests for documentation, or an absence/lack of communication from the insurer. Insurers may use these tactics to wear down policyholders, hoping the frustration or financial strain will push them to accept a lower settlement.
How Policyholders Can Fight Back
Unreasonable delays often interrupt business operations and lead to legal consequences for the insurer. Policyholders who face this issue can take legal action to recover damages beyond the original claim’s value, including interest on the delayed payment or costs incurred due to the delay.
2. Wrongful Denial of Claims
Wrongful denial of claims occurs when an insurer refuses to uphold a legitimate claim without a valid reason. Insurers may misinterpret policy language, declare insufficient evidence, or cite irrelevant exclusions to justify denying a claim. These tactics leave policyholders without the coverage they are entitled to under their insurance agreement.
Recommended Actions for Policyholders
When dealing with a wrongful denial, policyholders should review the policy’s terms with legal experts. In many cases, insurers may reverse their decision when confronted with evidence, and legal recourse can hold them accountable for acting in bad faith.
3. Failure to Conduct a Proper Investigation
Insurers are responsible for conducting a complete and fair investigation of every claim. When insurers fail to investigate properly, they undermine the integrity of the claim process and violate their obligation to the policyholder. Rushed investigations, ignoring relevant details, or refusing to gather necessary evidence all indicate bad faith behavior.
In commercial insurance, poor investigations can severely damage a business owner’s ability to recover from a loss. Insurers may cut corners by overlooking important facts or leveraging incomplete or biased reports to deny or reduce claims. These shortcuts often serve the insurer’s interest at the expense of the policyholder’s rights.
How Policyholders Should Proceed
An obvious red flag is when insurers avoid fully investigating claims. If the investigation seems inadequate, policyholders should press for more comprehensive reviews or consult legal guidance to ensure the insurer fulfills its obligations.
4. Lowball Settlement Offers
A lowball settlement is a significantly lower payout than the claim’s value. This bad faith strategy minimizes the insurer’s financial responsibility and takes advantage of businesses that may feel pressured to settle quickly or are unaware of the policy’s full worth.
In the context of commercial insurance, insurers may underestimate the cost of repairs, devalue business interruption claims, or ignore factors that impact the total loss. These wrongful tactics coerce policyholders to settle for far less than they are entitled to.
How Policyholders Can Respond
Business owners should pause and evaluate any settlement offers and consult experts, such as bad-faith insurance attorneys in Phoenix, AZ, to check if the offer covers the true costs involved. Pushing back with an exhaustive review of the claim and supporting evidence can prompt insurers to reconsider their initial settlement. If necessary, taking legal action can hold the insurer accountable for offering an unfair payout.
5. Misrepresentation of Policy Terms
As they say, “Desperate times call for desperate measures.” In some cases, insurers may distort the policy’s language, downplay or conceal exclusions, or reinterpret terms to deny a legitimate claim. For instance, insurers may attempt to use vague language or complex legal terms to confuse policyholders, causing them to accept a denial or reduction in coverage without fully understanding their rights.
What the Policyholder Should Do
To avoid falling victim to misrepresentation, business owners should always ask for clarification on confusing terms during the policy purchase process. When misrepresentation occurs, hiring a legal team can persuade insurers to do what’s right and keep the dispute out of court.
6. Unjust Refusal to Pay Claims
When an insurance company refuses to compensate valid claims, it violates the core purpose of the insurance agreement. The insurer may claim a lack of coverage or fabricate reasons to deny payment, even when the policy applies to the situation. For example, the insurer may ignore key evidence, misinterpret policy terms, or disregard proper documentation. Such bad faith actions back policyholders into a corner, often risking their business operations.
How Policyholders Can Protect Their Rights
Business owners should respond quickly to an unwarranted refusal by gathering documentation and seeking legal help. Holding insurers accountable through legal action can compel them to honor the agreement.
The Verdict: Don’t Take No for an Answer!
Our bad-faith insurance attorneys can spot the sneaky tactics insurers use to deny valid claims from a mile away. We know the game, and we’re here to ensure they play fair. If you believe your insurance provider has acted in bad faith, contact us today for authoritative legal advice.