The Dark Side of Bad Faith Insurance

Washington, DCThere was a time when only the foolhardy would be caught without insurance in force. And that pretty much holds true today. But you've got to wonder sometimes, with so many bad faith insurance stories out there.

The examples are legion where people who have paid their premiums faithfully for years and finally have to make a claim, wind up seeing their insurance claim turn into a bad faith insurance claim. Little wonder the local bad faith insurance attorney is so busy.

And those attorneys now have more ammunition for their kit bag, thanks to a recent study sponsored by the American Association for Justice (AAJ). 'Tricks of the Trade: How Insurance Companies Deny, Delay, Confuse and Refuse' is a blockbuster expose into the inner workings of the insurance industry, and the landscape isn't pretty.

Just imagine undergoing expensive cancer treatment, only to have your policy revoked right in the middle of it. Insurance that you have paid for, for years. Suddenly, when you really need it, somebody somewhere decides that you're costing him or her too much money, and you're left high and dry. Your treatment is halted, your life in limbo.

Nice.

Everybody has heard about the long-term-care insurance debacle, where claims are held up, seemingly forever, in a twisted framework of paperwork and bureaucracy, until the patient for whom the claim is made—often an elderly individual—suddenly dies.

According to the AAJ, that's the whole idea behind 'Delaying until Death.' "The bottom line," said one regulator "is that insurance companies make money when they don't pay claims. They'll do anything to avoid paying, because if they wait long enough, they know the policyholders will die."

There are other bad faith tactics, according to the AAJ expose. Insurance companies are alleged to have written confusing, and incomprehensible contracts that few consumers would ever fully understand. In this way, they may not fully understand their coverages, and the limits.

A new wrinkle in the bad faith insurance laundry basket is the use of a consumer's credit score to set premium levels, regardless of the individual's health risk. Sometimes a credit score will dictate whether an individual can even get insurance. This discriminates against individuals, such as the elderly, who have or use very little credit, or those who prefer to pay their bills with cash or check. A credit score with little or no activity, regardless of the financial health and record of paying bills, is of little benefit to an individual if an insurance company is using the credit score as the sole qualifier for insurance, or to set the premium.

As noted above, the bad faith insurance practice of abandoning the sick in their hour of need is unthinkable. And yet it has been alleged that some insurance companies have actually offered bonuses to employees who meet 'cancellation goals.' It has been reported that cancer patients, in the middle of chemotherapy, have been targeted. All this, in spite exemplary record of premium payment, just because a patient's condition is getting too expensive, in the insurer's view, to treat. So they cut and run.

Insurance is regulated by the state, and there are rules and statutes in force. But that doesn't seem to stop the perpetrators of bad faith insurance. For example, it has been reported that insurance regulators in California randomly selected 90 cases where Anthem Blue Cross cancelled policies. In every case, the cancellations were said to be in violation of state statutes.

One company, Farmer's Mutual, is alleged to have had an employee incentive plan dubbed 'Quest for Gold' that rewarded employees for having low payouts. Other companies set goals, and quotas to get claims off the books in order to avoid payouts. Allstate is said to have extended to employees gifts, and other incentives as rewards for the denial of claims, and allegedly used various hardball tactics on policyholders who refused acceptance of a lowball offer.

AIG—yes, the same company that was famously bailed out by Federal money just a few short months ago—is said to have formed teams to systematically reject thousands of valid claims.

And then there's the 'one-call-and-you're-out' phenomenon. That's where policyholders who simply make a phone call for information, or just merely ask a question, are flagged by the insurer. Most homeowners know, or have even been counseled by their insurer, that making a claim for a small item is foolhardy: your premium could go up, and your policy may not be renewed. It could even be revoked. Thus, most homeowners play it smart and will claim only for something that represents a substantial loss.

But call to ask a simple question? Some companies treat that call as if it were a claim, and suddenly you're left out in the cold. You haven't made a claim. You simply made a phone call.

The outrageous conduct of some bad faith insurance companies, sadly, cast a pall over the good ones. And there are some good ones out there. But the industry, as a whole has been vilified and with good reason. Your insurer, of course, is quite happy with your dedication and fairness in paying your premium on time, without fail, every month. And yet when you need them, all that premium goodwill goes out the window. Sorry, you can pay us, but we don't have to pay you. Too bad.

What's the number of that insurance bad faith attorney again?