BEWARE DISABILITY INSURERS! DON’T PRACTICE BAD FAITH IT COULD COST YOU.
A rise in bad faith lawsuits against disability insurers has resulted in tens of millions of dollars in jury awards.
Here are some key examples of how costly a bad faith law suit can be for an insurance company:
- May 2001, a Florida jury awarded $36.7 million to an eye surgeon with Parkinson’s disease whose claim was denied even though his disease had made his hands tremble.
- February 2002, a California judge upheld a $7.67 million jury award (including $5 million in punitive damages) to a former chiropractor and sternly warned the insurer against future violations.
- January 2003, a California jury awarded $31.7 million (including $30 million in punitive damages) to another eye surgeon. Although the verdict was reduced to $6.1 million, the judge rebuked the insurer for the “creation of a claims-handling procedure that appears designed to avoid performing a thorough, competent and objective investigation of a plaintiff’s claim.”
What should insurers do to avoid bad faith lawsuits?
First the insurance carrier needs to understand the nature of bad faith claims and why it leads to larger jury awards. Disability insurance is designed to provide peace of mind and security in the event the person is unable to work due to illness or injury. The insurance carriers should not have the mindset that insured persons want to profit from their disability coverage—but rather are seeking protection against calamity.
To maintain the appropriate level of good faith, insurers must thoroughly investigate an insured’s claim and not withhold payment of claims unreasonably. If an insurer ignores evidence, doesn’t properly investigate the claim, or acts unreasonably toward its insured it breaches the implied contract of good faith.
The next step is to make sure disability claims are handled in keeping with the industry’s standards. Insurance companies should follow some basic ground rules:
• Treat their policyholders fairly. First-party claims should not be antagonistic process
• The interests of the policyholder should be treated with at least equal respect to company’s interests
• Thoroughly and fairly investigate and evaluate each claim, carefully collect all facts necessary for good faith judgment on the claim and weigh facts honestly
• When evaluating a claim for benefits, the financial impact on the insurance company should be the final consideration
• Don’t place excessive importance on information that merely benefits the company but also give equal and fair consideration to information that may benefit the insured
• Pay claims unless there is a good reason not to—denials should not be grounded on supposition.
And finally, companies should be sure that claims processing procedures include:
• Giving weight to Social Security disability awards.
• Giving credence to objective/subjective findings and the treating doctors’ diagnosis and opinion when assessing impairment.
• Looking at co morbidity claims jointly.
• Selecting fully trained medical examiners for independent medical examinations who are unbiased and don’t have a direct financial interest tied to the company.
Developing a claims handling system based on these concepts should help disability insurers avoid bad-faith litigation.
Tags: Medical Claim Denial, Medical Claim Denied, Medical Insurance Attorney
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