How to Challenge an Insurance Denial and Strengthen Your Claim

The insurance company sent you a letter and told you “no” when what you really needed was a “yes”. Maybe they denied your claim completely. They could be dragging their feet, hoping you will eventually give up. The question now becomes: how to prove bad faith insurance when an insurer refuses to treat your claim fairly? The answer is to stay focused on the facts and gathering evidence.

Key Takeaways

What Is a Bad Faith Insurance Claim in Alabama?

Insurance companies are allowed to investigate claims, question damages, and deny coverage when a policy does not apply. A disagreement over a claim does not automatically mean an insurer acted wrongfully. Not every denied insurance claim is a bad faith claim. A bad faith insurance claim occurs when an insurer refuses to pay a valid claim without a reasonable basis or fails to properly handle the claim investigation. In Alabama, these claims generally fall into two categories: ordinary bad faith and extraordinary bad faith.

Ordinary Bad Faith

An ordinary bad faith claim generally involves proving that:

• Your policy provided coverage for the loss.
• The insurer had no reasonable basis for denying or delaying your claim.
• The insurer knew or should have known its decision lacked justification.
• The insurer failed to conduct a proper investigation.

Extraordinary Bad Faith

Extraordinary bad faith involves conduct that goes beyond a simple claim dispute. Examples may include:

• Ignoring evidence that supports coverage.
• Deliberately avoiding an investigation.
• Taking steps to make it harder for a policyholder to receive benefits.

The difference often comes down to the insurer’s actions and whether it handled the claim fairly.

What Must You Prove to Win a Bad Faith Insurance Claim?

A bad faith claim is about more than being unhappy with an insurance company’s decision. To succeed, you must show that the insurer’s actions went beyond a simple disagreement and that it failed to handle your claim fairly. Alabama law requires policyholders to meet specific legal standards.

1. Valid Insurance Policy and a Covered Claim

To have a bad faith denial, the policyholder needs to have a valid policy with the insurance company. The first step is to provide evidence of a valid and active policy. Then, show that the event leading to the claim was covered by the policy. It’s also crucial to show that the policyholder followed the required steps for submitting a claim. That way, the insurance company can’t rely on an administrative issue as the reason for denial.

2. Insurance Company Lacked a Reasonable Basis

An insurance company can deny a claim if the event or loss is outside of the policy coverage, or if there is a lack of evidence to support coverage or loss. A denial in itself doesn’t support a bad faith argument. The court looks at whether the insurance company had a legitimate reason for the denial.

3. Insurance Company Failed to Properly Investigate

The insurance company has a duty to investigate all claims. It must do so before issuing a decision about the claim. A policyholder needs to show that the insurance company failed to do so. This could be done by providing evidence of:

• Ignoring important evidence.
• Failing to inspect damages.
• Delaying responses without explanation.
• Relying on incomplete information.
• Changing reasons for denial.

4. Insurance Company Knew or Should Have Known the Claim Was Valid

One of the most crucial elements of a bad faith claim is showing that the insurance company should have known the claim was valid. The court looks at what the insurance company knew at the time of denial or delay. Policyholders can support their argument with internal claim evaluations, adjuster communications, previous insurer statements, or coverage evidence. Working with a lawyer can be beneficial, as much of this information is gathered during the discovery phase. A lawyer will know what and how to go about gathering this evidence.

Challenge an Insurance Denial

Receiving a denial letter from your insurance company isn’t always the end of the road for your claim. Insurance companies will generally give policyholders an avenue for appealing the denial. The first step is to carefully read the denial letter. It should include the reason for the denial, policy terms relevant to the denial, and how to appeal the decision.

Before submitting a challenge, gather as much evidence as possible to support your claim if you are trying to prove bad faith insurance. Try to focus on directly addressing the reason for denial. This could include additional photos, video, medical records, repair estimates, witness statements, or expert opinions. Follow the insurance company’s appeals process to prevent an auto denial.

Why You May Need an Attorney

Going up against an insurance company can be an arduous task. The insurance company employs its own attorneys who handle cases daily. These legal teams protect the insurance company’s interests, not the policyholder's. Their experience can put the policyholder at a disadvantage. Hiring a lawyer who has experience with bad faith claims can help put the policyholder on even ground with the insurance company when trying to prove bad faith insurance.

A lawyer can assist with policy interpretation, claim investigation, and evidence gathering. They can also explain applicable Alabama statutes and previous case law. With this knowledge and experience, a lawyer will advise on the potential of a bad faith claim.

What Compensation May Be Available?

An insurance bad faith claim is treated differently from other breach of contract claims. The court treats it more like a tort claim because the insurance company acted in a way that knowingly violated the insurance policy. This difference means the potential damages are different. Potential recovery can be higher than the value of the original insurance claim.

If a claim is successful, compensatory damages are the amount the insurance company should have paid for the claim. Any additional financial losses as a result of the denial are added. Non-economic damages are not normally given for a breach of contract claim. However, they may be possible in a bad-faith claim. They provide compensation for stress, frustration, and emotional distress caused by the insurer’s conduct.

Punitive damages may also be available if the insurance company’s actions were particularly egregious. These damages aren’t meant to make the policyholder whole. Rather, they are designed to punish the insurance company and discourage it from acting that way in the future.

Talk to a Lawyer

Fighting an insurance company after a denial can feel overwhelming, especially when you are already dealing with the aftermath of an accident. If you are wondering how to prove bad faith insurance, evidence can help show whether bad faith occurred. That is where Jemison & Mendelsohn can help. We help clients evaluate denied claims, identify potential bad faith conduct, and pursue solutions when insurers fail to meet their obligations.

Schedule a consultation and discuss your options.