Disability insurance companies have historically refused benefits to policyholders. Many policyholders hear the same excuses as to why their claims have been denied. Excuses range from failing to receive documentation or medical reports on time, to certain ailments not being covered disabilities nor severe enough to prevent the employee from working. Recent studies have proven the insurance companies wrong, yet benefits are still often initially denied and require an attorney's assistance to recover them.
Professional disability insurers have been found liable for denying coverage on claims brought by disabled professionals. In the 1970s and 1980s, some of these insurers grossly oversold disability policies to younger professionals, anticipating that few claims would mount from this low-risk population. However, as the policyholders aged and became disabled, the claims mounted steadily. Some of the companies decided to cope by unfairly denying claims to cut their losses.
Bad faith claims are basically a breach of the insurance contract, when insurers use non-legitimate reasons to deny claims. Insurers have a duty to the insured to examine claims in good faith and use fair dealing when evaluating claims. To act in bad faith implicates the insurer to have purposefully engaged in unfair dealing, not in error. Most lawsuits involve action against an insured's insurance company, and arise in situations where the insurance company unfairly, and without proper cause, fails to compensate the insured for a loss covered by the policy, or unreasonably delays making payments due under the policy.
