When Insurance Won't Pay

By C. Mark Humbert

Insurance won't pay my medical claims. What can I do?

May 15, 2000 -- The concept of "bad faith" springs from a time-honored principle in the law that imposes something called the "duty of good faith and fair dealing" on the parties to a contract. In the area of insurance, it is a two-way street, requiring both the insurer and the insured to act reasonably and fairly with each other. The concept of bad faith usually applies to individual policies and not to group plans, but the law in this area is currently in a state of flux.

If your insurer has delayed paying your claim for no good reason or has taken a position on your coverage that is contrary to the plain language of your insurance policy, it may indeed be acting in bad faith. Without knowing more about your case, however, it's hard to be sure that this applies.

For an insurer, bad faith implies something worse than a simple breach of your policy. An insurer acts in bad faith when it willfully ignores your rights under the policy or takes a position on your claim or the meaning of policy language that is "unreasonable." Bad faith can be exhibited by unfair and unjustified refusals to pay claims or protracted payment delays. An extreme example might be when your insurer refuses to pay for treatment for head trauma in an auto accident on the grounds that the medical policy contains an exclusion for "mental and nervous disorders." This would be unreasonable and would therefore be bad faith.

Not every claim denial constitutes bad faith, however. It is not bad faith for an insurer to decline to pay a claim that is specifically not a covered benefit. Nor is it bad faith for an insurer to deny a claim based on a reasonable but ultimately incorrect interpretation of the law or facts that apply to the claim.

If you believe your insurer is acting in bad faith, you should consult an attorney who specializes in insurance for an opinion based upon the specific facts of your case. Often, a letter from him or her will solve your problem promptly. If that is unsuccessful, you can proceed to sue for breach of contract and bad faith. The damages for bad faith can include compensation to pay for the benefits themselves, your emotional distress, and, if the insurer's conduct is extreme, so-called punitive damages that are intended to punish the bad conduct.

C. Mark Humbert is a partner in a San Francisco Bay Area law firm specializing in the litigation of life and health insurance, managed care, and employee benefits cases. He serves on employee benefits committees of the American Bar Association and the American Arbitration Association.

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