The McKennon Law Group PC periodically publishes articles on its Insurance Litigation and Disability Insurance News blogs that deal with frequently asked questions in insurance bad faith, life insurance, long-term disability insurance, annuities, accidental death insurance, ERISA and other areas of law.  To speak with a highly skilled Los Angeles long-term disability insurance lawyer at the McKennon Law Group PC, call (949)387-9595 for a free consultation or go to our website at mslawllp.com and complete our free consultation form today.

If you have an individually purchased insurance policy that provides coverage for accidental death or dismemberment, the Employee Retirement Income Security Act (“ERISA”) does not govern your claim.  Instead, state law applies to your dispute, including a body of law known as “insurance bad faith” if you live in a state such as California that recognizes the tort of breach of the implied covenant of good faith and fair dealing.  In this article, we discuss insurance bad faith in the specific context of accidental death or dismemberment coverage.  First, we provide some brief background on insurance bad faith.  Next, we discuss the top five ways insurers commit insurance bad faith in the context of accidental death or dismemberment coverage: improper attempts to attribute the cause of injury to a non-accident, improper attempts to rescind, improper lapse of the policy, improper misrepresentation of the policy provisions and improper reliance on the policy exclusions.

What is Insurance Bad Faith

When an insurer enters an insurance contract with the insured, both parties promise to adhere to the express terms of the contract.  However, underlying the express terms of the insurance contract is an implied promise of “good faith and fair dealing.”  The implied promise of good faith and fair dealing requires that the insurer refrain from engaging in conduct that would harm the insured’s rights to receive benefits under the insurance contract.  If the insurer fails to do so, the insurer is said to have acted in “bad faith.”  The courts have read certain duties into that implied promise of good faith and fair dealing, such as the duty to conduct a thorough and fair investigation into all potential bases for coverage.  Failure to adhere to these duties may result in a breach of the implied promise to act in good faith.  Determining whether the insured has acted in bad faith is important, in part, because it directly affects the insured’s potential recovery.  When an insurer acts in bad faith, the insured may have access to a substantial additional recovery, including emotional distress, consequential and punitive damages.

1) Improper Attempts to Attribute the Cause of Injury to a Non-Accident

At the heart of accidental death or dismemberment coverage is the promise that, if the insured is dismembered or dies as a result of an accidental injury, the insured or his beneficiaries may recover accidental death or dismemberment benefits under the terms of such a policy.  However, the key provision to keep in mind is that the underlying injury must be the result of an accident.  How each individual insurance policy defines an accident varies, but it typically includes some language stating that the death, injury or dismemberment resulted from an “accident,” “accidental means” and/or “unforeseeable event” being the “direct and independent cause.”  In these cases, the insurer will often assert that an accident did not cause the death or dismemberment.  They may challenge the fact that there was an accident or say that some other sickness or injury caused or contributed to the dismemberment or death.  To the extent that the insurer’s assertions are disingenuous, or merely an improper attempt to avoid coverage, the insurer has acted in bad faith.  As a recent example, McKennon Law Group PC handled a case for our clients’, the son and daughter of a woman who died when she slipped and fell in the shower onto a handheld sprayer cord.  The insurer denied the accidental death claim arguing her death was a suicide, not an accident.  We hired an accident reconstruction expert and proved it was an accidental injury.  The insurer reversed the decision and paid the claim.

2) Improper Rescission of the Policy

Before a potential insured enters an insurance contract, he or she must apply for insurance coverage with the potential insurer.  On this application, the potential insured must answer detailed questions regarding his or her medical history.  For example, the application may ask whether the potential insured has been treated for chronic back pain within the last ten years.  Most policies also have a two-year incontestability clause meaning that, after two years that the policy is in force, an insurer may rescind a policy based only on material misrepresentations made on an insurance application.  Often an insurer will, instead of investigating reasons to approve a valid claim, spend its time investigating ways to cancel or rescind the policy.  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.  Defending such actions requires an experienced attorney, but 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.

3) Improper Lapse of the Policy

Most insureds pay regular monthly premiums for years without a problem.  Occasionally, after an unfortunate accident the insured may be forcibly hospitalized or in a coma, and thus, may uncharacteristically fail 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 those last few premium payments, the insurer will lapse the policy.  However, California recognized this issue in 2012 and so it enacted a statue to protect the insured from this situation.  Accordingly, if your accidental death or dismemberment coverage arises from a rider to your life insurance policy, arguably a lapse due to nonpremium payment falls under this California Law and the insurer is required to adhere to certain notice and grace period requirements before it can lapse the policy.  A failure to do so may result in improper lapse and potentially, bad faith.

4) Misrepresentation of the Policy Provisions Regarding Coverage

Occasionally, an insurer may improperly interpret the policy as including terms, provisions or requirements for coverage not clearly outlined in the policy.  Misrepresenting coverage provisions may give rise to a claim for insurance bad faith if it is improperly communicated to the insured.  Sometimes the agent is the culprit regarding such misrepresentations.  We have seen several situations where the agent that sold the insured the policy at issue misrepresented the relevant coverage provisions, likely in an effort to gain commission.  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 commit bad faith.

5) Misrepresentation of the Policy Provisions Regarding Exclusion from Coverage

Accidental death or dismemberment coverage always contains exclusions.  Exclusions carve out exceptions for certain types of injuries and the language of these exclusions is often ambiguous.  Under California law, such ambiguity in exclusions is interpreted narrowly, against the insurer (as the entity that drafted the insurance contract).  Contrary to that principle, insurers often broadly construe the exclusion provisions and use them to routinely deny claims.  To the extent that such an interpretation of the exclusions was disingenuous or overbroad, the insurer may have committed insurance bad faith and will be subject to further damages.

If your claim is governed by insurance bad faith, you may be entitled to substantial, additional compensation for suffering caused by a wrongful denial.  Having an experienced disability, life and health insurance bad faith attorney matters to the success of your claim.  If your claim for health, life, accidental death or dismemberment, short-term disability or long-term disability insurance has been denied, call (949)387-9595 for a free consultation 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 insurance claims.