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Monday, September 20, 2010
Is Your Insurance Company Acting in Bad Faith?
Anyone who owns assets, seeks medical treatment or owns or manages a business of any type is a potential claimsholder with an insurance company. All of these people -- and this covers most of our audience -- should consider the premise of a new book on the insurance industry called Delay, Deny, Defend: Why Insurance Companies Don't Pay Claims And What You Can Do About It, by Rutgers Law School professor Jay Feinman. (A related article is available here.)
The simple premise of this book -- that insurance companies are in the business of making money and thus have every financial incentive to increase their profit margin by paying out as little to policyholders, regardless of the merits of a claim -- makes eminent sense both economically and practically.
Policyholders who believe they have a valid claim and who experience any difficulty in getting a claim covered, in the proper or adequate amount, and paid in a timely fashion -- a practice which can be considered "acting in bad faith" -- should definitely consult with a qualified lawyer who practices civil litigation.
As an insurance industry spokesman in the aforementioned linked article points out, the industry does pay out most claims. (Remember that the insurance industry is subject to regulation by each of the states. How adequate or appropriate that regulation may be is a separate topic altogether.) However, the speed and amount of such payments can make all the difference. Some small businesses which encounter catastrophic events are often forced to close, despite having "insurance coverage," because their other resources cannot tide them over (usually because the businesses have loans and cannot get what's called "forbearance" on the loans while they wait for the insurance payment -- and during such time the business may be closed entirely) while they wait to resume operations and generate cash flow again. A related problem is the small business credit crunch, in which banks have become much stricter about which businesses they lend to, the amounts of the loans and all the conditions (such as representations and warranties, and covenants) the business borrower (and sometimes the "guarantors") are subject to. Again, anyone encountering any of these situations is well advised to consult with a qualified lawyer who understands the mechanics and rationale behind all of these types of transactions.
Eric Dixon is a New York lawyer and runs his own practice in New York City. He has been practicing corporate law since graduating from Yale Law School in 1994. He is available for comment or consultation at 917-696-2442 and accepts inquiries via e-mail at edixon@NYBusinessCounsel.com.