Life Insurance Bad Faith

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Los Angeles Life Insurance Bad Faith Attorneys

Life insurance policies promise financial security after a loved one passes.  However, insurance companies often deny life insurance claims and inflict additional stress on beneficiaries.  If your life insurance claim is denied in bad faith, you may be able to recover your benefits and punitive damages, consequential damages, emotional distress damages, pre-judgment interest and attorneys’ fees.  If your life insurance claim denial is subject to the Employee Retirement Income Security Act of 1974, known as ERISA, federal law applies, and there are limits on the type of compensation you may recover.

What Is Insurance Bad Faith?

Implied in every insurance contract is a promise of “good faith and fair dealing,” which means that the insurer must not violate the insured’s rights to receive benefits under the policy.  To comply with its promise to act in good faith, the insurer must adhere to certain duties, such as the duty to adequately and accurately communicate with the insured.  An insurer acts in bad faith when it fails to meet those duties unreasonably and without proper cause.  Determining whether there has been bad-faith conduct is important, in part, because it directly affects the insured’s potential recovery.  If the insurer is found to have acted in bad faith, the insured may have access to substantial additional recovery, including emotional distress, consequential and punitive damages.

1) Improper Attempts to Rescind the Policy

Most life insurance policies have a two-year incontestability clause.  After a policy has been in force for two years, an insurer may only be able to rescind a policy based on material misrepresentations made on insurance application.  Often, instead of investigating reasons to approve a valid claim, an insurer will spend its time investigating ways to cancel or rescind the policy.  For example, if a life insurance policyholder dies and the beneficiary submits a claim, the insurer may conduct an investigation into the insured’s medical history at and prior to the time of the application.  If the insurer finds what it characterizes as material misrepresentations, it will often attempt to rescind and cancel the policy so that it will never have to pay a death benefit claim.  To the extent that the insurer is only conducting the investigation to avoid paying death benefits or is representing immaterial facts as material, it has likely acted in bad faith.  There are many ways in which only very experienced life insurance attorneys can defend against such actions.  If the insurer did not act reasonably or with proper cause in denying the claim, the insurer may be subject to significant bad faith damages.

2) Unreasonable Delay in Paying the Claim

After a beneficiary makes a claim for life insurance benefits, the insurer will begin its own investigation into the claim.  At this point, the insurer may request additional records regarding proof of death, payment of policy premiums, the insured’s medical history or other records regarding the application for the policy.  The insurer must balance competing mandates: on the one hand, its duty to conduct a thorough review, and on the other, its duty to not unreasonably delay.  The “reasonableness” of an insurer’s delay may revolve around whether a “genuine dispute” as to coverage, or the amount of coverage, exists, and the evaluation of this will be focused on whether the delay in paying the claim was unreasonable, given all of the underlying circumstances that gave rise to the delay.  However, the insurer must reach this position in good faith, and this does not include an improper investigation to retroactively rescind the policy.

3) Improper Lapse of the Policy

Most insureds pay regular monthly premiums for years without a problem.  Occasionally, in the last few months of the insured’s life, the insured may be so ill that he or she uncharacteristically fails to pay the monthly premium.  In this unfortunate situation, it does not matter that the insured has paid premiums faithfully for many years.  If the insured misses even one premium payment, the insurer will lapse the policy.  However, California recognized this problem in 2012 when it enacted a statue that would protect individual and group life insurance policyholders from this situation.  Accordingly, under California law, for life insurance policies issued on or after January 1, 2013, an insurer is required to adhere to certain notice and grace-period requirements before it can lapse a life insurance policy for nonpayment of premium.  If the insurer fails to adhere to those requirements, then it will not only have to pay the life insurance claim because the policy will not have been properly lapsed, but it will also likely have committed insurance bad faith.  With respect to individual life insurance policies, insurers are also required to notify insureds that they can designate a third party to receive lapse and termination notices.  If insurers fail to do this, they may be unable to properly lapse the life insurance policy.

4) Misrepresentation of the Policy Provisions

Occasionally, an insurer may improperly interpret the policy as including terms, provisions or requirements for coverage that are not clearly outlined in the policy.  Misrepresenting relevant coverage provisions to the insured can give rise to a claim for insurance bad faith.  Sometimes the agent is the culprit regarding such misrepresentations.  We have seen several situations in which the agent who sold the policy at issue to the insured misrepresented the relevant coverage provisions, to the detriment of the insured.  In those instances, California law requires that insurers do not deny coverage based on an agent’s negligent misrepresentation of those coverage provisions.  When insurers ignore their agent’s statements regarding coverage, they may be committing bad faith.

5) Improper Reliance on Policy Exclusions

Life insurance policies always contain exclusions from coverage.  Exclusions essentially indicate what is not covered under the insuring clause.  These exclusions are worded so as to encompass many possible scenarios that result in non-coverage of a life insurance claim.  Exclusions are often ambiguous, and life insurers use them routinely to deny claims.  Exclusions may include dangerous activities such as skydiving or mountain climbing.  They may also include death due to suicide, intoxication or the commission of a crime.  If, for example, an insurer conducted an unreasonable and inadequate investigation of a death claim and concluded that the insured’s death was a suicide when the reasonable evidence suggested that the death was not the result of a suicide, a life insurer will likely have engaged in a bad faith life insurance claim denial.

If your claim is governed by California or another state’s insurance bad faith law, you may be entitled to substantial, additional compensation for suffering caused by a wrongful denial.  Having an experienced disability, health and life insurance claim denial attorney matters to the success of your insurance matter.  If your claim for health, life, short-term-disability or long-term-disability insurance has been denied, call 1-800-682-4137 for a free consultation or complete our free consultation form with the attorneys of the McKennon Law Group PC, several of whom previously represented insurance companies and are exceptionally experienced in handling ERISA and non-ERISA life insurance claims.

Call or email us to schedule a free consultation.


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Address: 20321 SW Birch St. Suite 200
Newport Beach, CA 92660

Phone: 800-682-4137

We also have offices in Los Angeles, San Diego and San Francisco.

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