Resource Center

When a disability insurance provider fails to meet its obligations, the company could be liable for acting in bad faith, so it is important to recognize the signs of potential bad faith, especially with a sizeable disability insurance claim.

High-earning professionals don’t reach the pinnacle of their profession by accident; they do so by working hard and making good decisions. One of those decisions is to secure disability insurance coverage to replace the substantial income they would lose if a disabling condition prevented them from practicing their profession.

Insurance companies are willing to accept the premiums paid for these policies, but they are less enthusiastic about paying benefits when a claim arises. Their reluctance to pay can cross the line into bad faith, which is legally actionable. But it can be difficult to determine whether claim problems stem from ordinary processing requirements or bad-faith actions. Here we review five common signs that an insurer may be acting in bad faith on a high-earner disability insurance claim and how you can protect yourself in this type of situation.

What is Bad Faith in the Handling of an Insurance Claim?

Bad faith in an insurance claim has been defined by the Pennsylvania Supreme Court as denying a claim without a reasonable basis while the insurance company either:

• Was aware that it lacked a reasonable basis for denial or
• Acted in reckless disregard as to whether they had reasonable basis for denial

An insurance company can act in bad faith not only by unreasonably denying a claim but also by unreasonably delaying action on a claim, making unreasonable demands, underpaying benefits, or other inherently unfair actions that violate policy terms without an appropriate reason.

If a court finds that an insurance company has acted in bad faith on a claim in Pennsylvania, then under Section 8371 of Title 42 of the Pennsylvania Statutes, the policyholder can receive back payments with interest, attorney fees, and punitive damages.

Red Flag #1 — Unjustified Denials Despite Strong Medical Evidence: Does the Insurer Seem to be Ignoring the Obvious?

Insurance analysts often apply their own logic. When an insurance company denies a claim despite a wealth of diagnostic test records, opinions from medical and vocational experts, and other evidence documenting functional limitations, it may be acting in bad faith.

Sometimes, the insurer focuses on a single finding and ignores the big picture. For instance, if a surgeon develops a condition in the dominant hand that prevents the surgeon from operating safely, the insurance company may deny a long-term disability insurance claim on the grounds that the surgeon can still dictate reports, which is a small aspect of the practice. Depending on the policy’s terms, this could be an obviously unreasonable reason to deny the claim. However, you should review the policy in detail to determine when coverage is supposed to be provided.

Red Flag #2 Unreasonable Delays: Have You Received Repeated Requests for Documentation?

Insurance companies have the right to investigate claims, particularly when the medical evidence is complex. However, they have certain obligations under Title 31, Chapter 146 of the Pennsylvania Code:

• Insurers must acknowledge receipt of a claim within ten business days
• Insurers receiving a claim must provide necessary instructions and claim forms within ten business days
• If a claimant makes other “pertinent communications” that “suggest that a reply is expected,” the insurer must respond within ten business days
• Insurers must complete investigation of a claim within 30 days unless that timeframe is unreasonable
• If an investigation is not completed within 30 days, then every 45 days after that, the insurer is supposed  to provide the claimant with a written explanation for the delay

While some obligations are spelled out, others are covered under a general concept of what is “reasonable.” Insurance companies have been known to use tactics to delay claims, such as requesting documents one at a time, with a lengthy delay between each request. 

Or they may request supplemental documentation that essentially duplicates what has already been provided. Continued requests for documentation should justify the delay in providing an answer, but often they do not. This could violate the insurer’s obligation to act in good faith.

Red Flag #3 Misrepresenting Policy Terms or Changing the Reason for Denial: Is the Insurer Interpreting the Policy Language Unreasonably?

When the provider of a disability insurance policy interprets policy language in a way that appears inconsistent with the reasonable contractual meaning, then the insurer could be demonstrating “reckless disregard” as to whether the denial was reasonable. This fits the definition of bad-faith conduct under recognized judicial interpretations.

It is a good idea to closely compare the rationale in the denial letter with the policy language and statements made in earlier correspondence. Professionals often receive conflicting explanations about whether the inability to perform certain occupational duties qualifies them to receive benefits under the policy. An insurer might misinterpret or change the interpretation of language regarding critical terms such as:

• The definition of a covered disability
• Limitations on benefits
• Conditions excluded from coverage
• Provisions regarding residual disability
• Elimination periods

Sometimes, a disability insurance attorney can work to resolve disputes about policy interpretations through correspondence or negotiation. Other times, the insurer’s illogical stance requires judicial intervention.

Red Flag #4 – Is the Insurer Disregarding Your Occupation, Income, or Functional Limitations?

Insurance analysts often overlook critical information. For instance, if your policy provides benefits based on your earnings, the company might focus only on salary and ignore commissions, bonuses, or partnership distributions that form a regular and critical part of your earnings. Unless the policy language specifically defines earnings to exclude these features, generally accepted practice includes them.

The insurance company might ignore inferences that should be obvious. For example, if an attorney’s physician reports that brain damage from bleeding in the brain severely interferes with memory, concentration, and the ability to form sequential speech, then that attorney will not be able to form persuasive, coherent written arguments for legal briefs, demand letters, and other tasks. Attempting to do so could put the attorney at risk of malpractice because of the known reduction in critical abilities. Yet the insurance company may insist that if the attorney can physically write or dictate, they can still produce legal work. Insurers erroneously focus on minutiae and refuse to acknowledge the big picture.

Another way insurers willfully or recklessly ignore the realities of a disability insurance claim is when they insist a claimant does not qualify for benefits because they can perform a low-skill job, such as greeting patrons at a big box store. If the policy defines a qualifying disability as one that prevents the policyholder from performing tasks necessary for a job commensurate with their training, education, and experience, and the policyholder has served as an upper-level executive for decades, then the insurer is clearly disregarding the realities of the claimant’s situation in light of the definitions in the policy.

Red Flag #5 – Inadequate Investigations – Did the Insurer’s Decision Ignore Critical Evidence?

If an insurer ignores medical evidence or relies strictly on a short period of surveillance to deny a disability claim, that could signal bad-faith conduct. Carefully review the information referenced in a denial letter.

• Did the insurer fail to address the opinions of the treating physician?
• Are critical medical records never referenced?
• Does the insurer rely on some records while ignoring or discounting others?
• Is there mention of the claimant being observed and exercising apparent abilities?

While insurance companies can observe the claimant and can weigh evidence, these actions must be reasonably balanced. The insurer cannot base an entire decision on a five-minute observation while ignoring other evidence. A chiropractor who has filed a claim because back injuries limit mobility may be able to stand for long enough to wait in a short checkout line at a grocery store. But if medical records and physician opinions indicate that the chiropractor can stand only a few minutes each day and cannot move in ways that allow for treating patients, that evidence should not be ignored.

What Should You Do if You Suspect Bad Faith in a Disability Insurance Claim?

If your disability insurance claim has been unreasonably delayed or denied and you suspect bad faith, it is helpful to:

• Obtain and save a copy of the full policy
• Save all correspondence regarding the claim, including proof of receipt of documents and the denial letter
• Check for appeal deadlines or limits set in the policy
• Consult an attorney to help with a strategic appeal or other action

Not every delay or denial results from bad-faith action by an insurer. Conduct has to be egregious to reach that level. But an attorney can help recover benefits due under the policy even if the insurer’s actions have not reached the level of actionable bad faith.

FAQs About Bad Faith in High-Earner Disability Insurance Claims

What qualifies as bad faith in a disability insurance claim?

While the standard for bad faith may differ in other states, in Pennsylvania you must prove the insurer acted without reasonable basis and either knew it lacked reasonable basis or acted with reckless disregard as to whether its actions were reasonable.

Can I sue my disability insurance company for bad faith?

If you purchased your policy individually rather than through an employer, the law generally gives you the right to file a bad faith lawsuit. If ERISA governs your policy, remedies are limited by federal law.

What evidence helps prove bad faith?

The most helpful evidence to show your insurer acted in bad faith comes from the insurance company’s claim file. A disability insurance attorney can take legal action to demand this information.

If You Suspect Bad Faith, Schedule a Free Consultation with Seltzer & Associates

Even if your disability insurance company’s actions aren’t blatant enough to meet the legal standard for bad faith, they may still be unfairly preventing you from receiving the benefits you deserve under your policy. We may be able to help.

The team at Seltzer & Associates has focused on disability insurance for decades. We know how insurance companies try numerous tactics to avoid paying full benefits on disability insurance claims for high-earning professionals. When you’ve paid premiums regularly, we believe you deserve to get the resources you need if a disability prevents you from practicing your profession.

We invite you to schedule a free consultation with a disability insurance attorney on our team today to discuss your next steps.