Insurance companies have an incentive to minimize how much they pay when people file claims. The less they pay out, the larger the organization’s profit margins. The desire for profit directly conflicts with the contractual obligation to pay valid claims.
As such, there are state and federal regulations in place to prevent insurance companies from manipulating or defrauding consumers. Insurance companies have a legal obligation to uphold their policies in good faith. They should not deny valid claims or unreasonably delay claim payments.
Additionally, insurance companies should not misrepresent the rights of policyholders or claimants during negotiations to trick them. In some cases, low settlements may constitute actionable bad faith insurance practices.
Offering low settlements can be a bad faith practice
The amount of insurance coverage available depends in no small part on what the policyholder purchased. They set their coverage amounts, which then become their policy limits. An insurance provider never pays more than the policy limits regardless of the losses generated.
That being said, companies often try to resolve claims for far less than the applicable policy limits. People may need help comparing their total losses and the settlement offered by the insurance company to the policy limits that apply. If the settlement is below both the policy limits and the verifiable covered losses, then the situation may warrant a bad faith insurance lawsuit.
An attorney can help with the review of policy documents, negotiations with insurance providers and litigation if necessary if bad faith practices have occurred. Securing legal guidance can help people evaluate insurance company conduct and pursue the compensation they deserve.
