What Constitutes Bad Faith by a Life Insurance Company?
At the core of every insurance contract is a duty of “good faith and fair dealing.” This means the insurer must honestly investigate and evaluate every claim, avoid unreasonable delays, and provide clear explanations for any denial. When they instead use misleading interpretations, ignore vital evidence, or stonewall claimants, they may be committing bad faith.
Bad faith can take many forms, including:
Denying valid claims without conducting a proper investigation
Misinterpreting policy exclusions to justify non-payment
Unreasonably delaying a decision or payout
Falsely claiming a policy lapsed without following required procedures
Using the contestability period as an excuse to dig for errors years after the fact
Each of these actions puts families at risk—especially those counting on death benefits to cover mortgage payments, education, or daily living expenses.
Common Bad Faith Tactics in Life Insurance Claim Denials
Not every denial is based on a valid reason. Insurers often rely on complex language and ambiguous policy terms to confuse or discourage beneficiaries. Below are some of the most common bad faith strategies used to deny life insurance claims:
1. Misuse or Manipulation of Policy Language
Life insurance policies are filled with technical language, exclusions, and conditions. If the insurer misrepresents the meaning of those provisions—especially if the agent originally explained them differently—it may amount to bad faith. Courts have recognized that policyholders rely on the agent’s explanation when buying coverage, and if the insurer later uses obscure wording to deny benefits, that’s potentially illegal.
2. Unreasonable Delays in Claim Processing
During the contestability period (the first two years after a policy is issued), insurers have the right to investigate claims more thoroughly. But even then, they must act promptly. Gathering documents like the death certificate, policy copy, or medical history should not take months unless there’s a valid dispute. When insurers drag out the process without justification, it could be grounds for a bad faith claim.
3. Canceling the Policy in Bad Faith
Policies become “incontestable” after the two-year mark—unless the insurer finds proof of material misrepresentation. But some companies exploit this by combing through old applications in search of minor, unrelated errors. If they cancel a policy based on immaterial or irrelevant omissions just to avoid a payout, they may be acting in bad faith.
4. Abusing Ambiguous Exclusions
Some policies include broad or unclear exclusions that insurers stretch to cover unrelated deaths. For instance, claiming a murder victim’s death falls under a suicide exclusion without sufficient evidence, or using “hazardous activity” clauses to deny claims when the activity wasn’t actually excluded. This misuse of language is a red flag.
5. Improper Termination Due to Lapse Without Required Notice
If a policy lapses due to missed payments, insurers are often required—by law—to provide written notice and a grace period. In states like California, failing to send proper notice invalidates the lapse. If a loved one died during this window and the insurer didn’t comply with legal notice requirements, their cancellation of the policy may be considered bad faith.
How a Life Insurance Attorney Can Help in a Bad Faith Claim
When a claim is wrongfully denied, delayed, or manipulated, hiring a life insurance attorney may be the only way to fight back. A skilled attorney will analyze the policy, gather evidence, and pressure the insurer to honor its obligations. In many states, if bad faith is proven, the insurer may be liable for:
Full death benefit
Interest on delayed payments
Attorney’s fees
Emotional distress damages
Punitive damages
Insurance companies count on beneficiaries walking away or accepting less than they deserve. With legal representation, you gain leverage and often resolve claims faster—with better results. We specialize in holding insurers accountable and reversing wrongful denials.
Frequently Asked Questions (FAQ)
Q: What is bad faith in a life insurance claim?
A: Bad faith refers to dishonest or unfair practices by an insurance company, such as wrongful denials, delaying payments, or misrepresenting policy terms to avoid paying a valid claim.
Q: Can I sue a life insurance company for bad faith?
A: Yes. If an insurer acts in bad faith, you may sue for the original policy benefits plus punitive damages, attorney’s fees, and emotional distress compensation in many states.
Q: What are examples of bad faith in life insurance?
A: Examples include unreasonably delaying payment, denying a claim without investigation, misusing policy exclusions, or canceling a policy without proper notice.
Q: How long can a life insurance company delay a payout?
A: Insurers must act within a reasonable timeframe—typically 30 to 60 days. Excessive delays without valid reasons may be considered bad faith.
Q: Do I need a lawyer to fight a bad faith denial?
A: Absolutely. Insurance companies have teams of legal experts. Having a skilled attorney levels the playing field and significantly increases your chance of a successful claim or lawsuit.