For policyholders, bad faith claims are perhaps the strongest tool to deter insurance companies from denying coverage without proper justification or unreasonably delaying its decision on a claim. However, definitively proving that a carrier acted in bad faith can often be an uphill battle.
Here, experts dive into what types of evidence can strengthen a policyholder’s bad faith case.
Contrary Claim Decisions
When faced with an uncooperative insurance company, it is important for a policyholder to review how the insurer has responded to its past claims for coverage under the same policy or similar policies, experts say.
“If you have filed multiple claims with an insurer and have had the insurer handle one differently from the others, demand a clear explanation as to how that happened,” said Sherilyn Pastor, leader of McCarter & English LLP’s insurance coverage group. “Does [the insurer], for example, apply a different and more critical level of inquiry and analysis when the amount at issue is greater?”
Insurers will likely fight requests for documents pertaining to their claims handling history, citing privacy concerns or the heavy burden of producing the records, but policyholders can pursue a number of strategies to push back, according to experts.
“Press the carrier to prove that the request for other policyholders is really too burdensome or voluminous,” Pastor said. “Have them identify the number of claims, and how information is stored regarding them. If there are a fair number, it may nonetheless be possible to get sampling of the other policyholder claims, perhaps the last 10 or so claims.”
If an insurer has concerns about privacy, a court can enter protective orders or allow the insurer to redact certain information, Pastor said.
“A court can enter orders to ensure that relevant and discoverable documents are provided and that privacy concerns are overcome,” she said.
Claims Handling Manuals
When pressing a bad faith claim, a policyholder should also seek copies of the carrier’s claims manuals and written claims handling procedures, according to attorneys.
“It’s important to assess [the insurer’s] performance against what these documents require,” Pastor said.
If a carrier says that it doesn’t have standard or accepted procedures, that, too, can be an important revelation in proving a bad faith case, according to Pastor.
“It can show that the insurer lacks a fair, reasonable and systematic or unified approach to its claims handling,” she said.
Many insurers will resist producing their claims manuals or procedures on the grounds that they constitute trade secrets or proprietary information, experts say. Again, policyholders may still be able to compel insurers to produce those materials, according to Pastor.
“Push the insurer to explain what it regards as some sort of trade secret or proprietary, and why,” she said.
For instance, a policyholder can question whether the carrier gives out the manual and written procedures to all of its claims handlers and, if so, what measures it takes to safeguard those materials, Pastor said.
“Most insurers take the position that claims manuals are protected but can offer no basis why they cannot be produced, particularly if there is a confidentiality agreement in place,” she said.
Policy Marketing Materials
Policyholders should review all the marketing materials and other information about an insurance policy that it received at the time of purchase as those documents can shed light on whether an insurer’s actions and coverage positions are consistent with how the policy was advertised, experts say.
If an insurer promised a certain scope of coverage in marketing materials but is now making efforts to narrow coverage, that disparity can support a bad faith claim, according to experts.
“Those materials can illustrate what promises were being made about the scope of coverage and how claims will be handled,” Pastor said. “What an insurer says when it wants your premium dollars may be entirely different from, and inconsistent with, how it interprets its contract and treats you after a loss.”