Understanding how insurance works—and what to do if your insurance claim is denied—can make a huge difference when you’re dealing with an unexpected financial burden. In Canada, “insurance bad faith” is a term used when an insurance company treats a policyholder unfairly, such as by denying a legitimate claim or offering a lower settlement than what is owed. This guide will walk you through what insurance bad faith entails, how to handle a denied claim, and the options available if you feel that your claim was unfairly denied.
What Is Insurance Bad Faith?
Most insurance policies operate under the principle of “good faith.” This means that the insurance company is expected to treat policyholders fairly, handling claims honestly and without unnecessary delay. Unfortunately, some insurers may prioritize profits over fairness, which can lead to situations where legitimate claims are undervalued, delayed, or outright rejected. If you feel that your insurer has acted in bad faith, you have the right to pursue legal action to seek fair compensation.
Common Bad Faith Practices by Insurers
Insurers may engage in various practices that constitute bad faith, such as:
- Rejecting claims without explanation
- Failing to conduct a fair investigation of the claim
- Delaying payment unnecessarily
- Offering “lowball” settlements far below the policy’s promised coverage
In such cases, a policyholder can file a tort claim against the insurance company to enforce the policy and receive the owed compensation.
Navigating the Insurance Claims Process in Canada
The insurance claims process varies by policy type (e.g., auto, life, or health insurance). To protect yourself from potential bad faith actions, it’s essential to understand your policy thoroughly and follow the claims process accurately.
Step 1: Review Your Insurance Policy
Start by carefully reviewing your policy’s terms and conditions. Look for any exclusions or limits on the type of loss you’re claiming. It’s crucial to understand what’s covered and ensure that your event qualifies under the policy.
Step 2: Follow the Claim Procedures
Each policy comes with specific steps for filing a claim, so follow them carefully. Timing is often essential, with many insurers requiring claims to be filed within 90 days to one year from the date of the incident. Be sure to:
- Gather all required documents (e.g., accident reports for car insurance or a death certificate for life insurance)
- Submit accurate information to avoid any allegations of fraud
- Respond promptly to any requests for additional documentation
In Ontario, for instance, the insurance industry is governed by the Insurance Act (R.S.O. 1990, c. I.8), which includes regulations on fair claims handling.
Step 3: Work with the Insurance Adjuster
After submitting your claim, an insurance adjuster will evaluate it based on your policy’s terms. During this process, the adjuster may request further information, especially for claims involving higher payout amounts. Having a full, accurate set of records can help you avoid delays and ensure that your claim is fairly evaluated.
Why Insurance Claims Get Denied
There are several reasons why insurance claims may be denied, some of which may be due to genuine misunderstandings, while others may stem from bad faith practices. Here’s a breakdown of common reasons:
Legitimate Reasons for Claim Denial
- Lapsed Policy: If you missed premium payments, your policy may no longer be valid.
- Exclusions: Some events or losses may not be covered under your policy.
- Failure to Meet Deductibles: If the loss is below your deductible, the insurance company won’t pay out.
Bad Faith Denial Tactics
On the other hand, some denials may arise from bad faith tactics, such as:
- Disputing the facts of the claim to create confusion
- Interpreting policy language loosely to fit their benefit
- Failing to explain the denial adequately to the policyholder
In these cases, it can be helpful to consult a legal professional experienced in insurance disputes to help contest the denial and seek a fair outcome.
Types of Bad Faith Lawsuits in Canada
When insurers don’t fulfil their “good faith” obligation, policyholders can seek compensation through a bad faith lawsuit. Canadian insurance law requires that insurers perform a thorough investigation of each claim and provide a settlement that aligns with the policy’s coverage. Common reasons for filing a bad faith lawsuit include:
- Failure to Investigate Properly: Insurers must investigate claims impartially and completely.
- Low Settlement Offers: Insurers cannot offer settlements that fall significantly below what the policy promises.
- Undue Delays in Payment: Prolonged delays without valid reason can be grounds for a lawsuit.
- Misleading the Policyholder: Insurers must disclose critical information and clarify policy terms when requested.
If you believe your claim was mishandled, a qualified insurance lawyer can help you understand your options and, if necessary, assist in filing a lawsuit to recover damages.
Real-World Examples of Bad Faith Lawsuits
A policyholder may file a lawsuit against an insurer if they’ve experienced:
- Complete refusal to pay a legitimate claim
- Failure to provide timely updates on the status of a claim
- Misrepresentation of the policy’s coverage limits
The insurer’s duty is to both investigate thoroughly and honour the policy’s terms. Courts across Canada have generally ruled in favour of policyholders in cases where insurers were found to act in bad faith, awarding compensation for financial losses as well as emotional distress.
When to Seek Legal Help
If your insurance company has denied or delayed your claim and you suspect bad faith tactics, consulting a lawyer may be a wise decision. Experienced lawyers, such as those at Paciocco & Mellow in Windsor, can help guide you through the process, protecting your rights and negotiating on your behalf.
What a Lawyer Can Do
A lawyer specializing in insurance claims can:
- Review the policy terms and denial reasons to determine if there’s a case for bad faith
- Communicate with the insurer to negotiate a fair settlement
- File a lawsuit if necessary to seek compensation beyond the policy’s face value if damages were caused by the insurer’s bad faith actions
Legal representation can be especially beneficial in complex cases where the insurer’s refusal or delay has caused significant financial or emotional hardship.
Final Thoughts on Insurance Bad Faith
Dealing with an insurance claim denial can be frustrating and financially overwhelming, especially when bad faith tactics are at play. Understanding your policy, documenting all interactions, and consulting a knowledgeable lawyer are essential steps to protect yourself and ensure fair treatment. Remember, Canadian law requires insurers to act in good faith—if your insurer isn’t doing so, you have legal options available to get the compensation you deserve.
This blog post covers essential aspects of personal injury claims, focusing on Ontario’s legal framework to guide Canadians seeking compensation.
Note: The information provided on this website are for general informational purposes only and should not be considered legal advice. Consult with a qualified personal injury lawyer at Paciocco and Mellow for personalized guidance regarding your specific case.