Disability Benefit Denials
Disability Income policies are drafted with ambiguous and confusing
contractual terms. This provides insurance companies with multiple
reasons for delaying and denying disability income benefits. Given
the complexity of the legal issues involved and the tendency of
insurance companies to vigorously defend claim denials, evaluation
of any potential legal claim on behalf of an insured should be handled
by a disability attorney or law firm experienced in insurance claims
and bad faith litigation.
If an insurance company has denied a claim and upheld the denial
through internal appeal and grievance procedures, the insured can
sue on a number of legal theories. The theories include breach of
contract, breach of the implied covenant of good faith and fair
dealing (bad faith) and under some circumstances infliction of emotional
distress and fraud.
The two primary legal remedies available in most cases are breach
of contract to recover the value of the denied benefit or service
and any incidental damages and bad faith. Bad faith is the unreasonable
denial of a benefit and may allow recovery for emotional distress,
interest on out-of-pocket losses, damages for any attorney fee obligations
incurred and, in limited circumstances involving malicious or willful
misconduct, punitive and exemplary damages. These legal remedies
are ones that are available under state law, not federal law. In
addition, especially with regard to the tort remedies of bad faith,
infliction of emotional distress and fraud, the availability of
the remedy and the nature and extent of damages recoverable vary
from state to state.
All insurance policies contain an implied obligation applicable
to the insurance company of "good faith and fair dealing"
towards its insured. When a claim is presented, this implied obligation
means that an insurance company cannot simply look for reasons not
to pay. Instead, the company must make a thorough investigation
of the claim, must consider all reasons and circumstances that might
support the claim, and must give as much consideration to the financial
interest of the insured as it gives to its own financial interest.
If an insurance company refuses to pay a claim that should be paid
or offers to settle a claim for less than it knows the claim is
worth or denies a claim without adequate investigation, this could
give rise to a so-called bad faith claim against the insurance company,
i.e., a claim that the company has breached its implied obligation
of good faith and fair dealing. If the company is found to have
acted in bad faith in its handling of a claim, the insured is entitled
to all damages resulting from that action, including certain types
of damages that would not be available just for breach of contract.
In cases of extreme or outrageous misconduct by an insurance company,
the insured also may be entitled to receive punitive damages.
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Queens County
