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Insurance Fraud

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Insurance fraud encompasses a myriad of unlawful acts committed by insurance companies when processing insurance claims. Also known as insurance bad faith, insurance fraud ranges from inadequate or delayed payment to outright denial of legitimate claims.

Because no federal laws exist to regulate the insurance industry, the states have passed laws and established commissions to prevent fraudulent activity. Insurance companies are bound by these laws to honor the insurance contracts they sign with their customers. Unfortunately, state insurance commissions are sometimes ineffective, and as a result insurance fraud is fairly common. With nowhere else to turn, many people who have been victimized by insurance companies acting in bad faith contact insurance fraud lawyers for help.

Types of Insurance Fraud

Insurance fraud is by no means limited to the denial of valid claims. Because insurance companies are required by law to act in good faith — by responding to claims quickly and in a reasonable manner — any deliberate breach of this responsibility may be considered “bad faith.” Moreover, insurance carriers are disallowed by law from placing their own financial interests above the interest of their insured customers.

Here are some of the more common examples of bad faith insurance:

  • Failure to investigate a claim
  • Delayed payment
  • Insufficient payment
  • Failure to pay a claim that has been approved
  • Denial of a legitimate claim
  • Denial of benefits as outlined in a contract
  • Unreasonably interpreting a contract

If you feel or suspect that your insurance carrier may be guilty of one of these acts, see the information below to help determine if you should contact an attorney for further assistance.

What to Do

If you believe your insurance company has acted in bad faith, there are several things you can do.

Read your policy. Reading through your contract will give you a better idea of where you stand. In addition, it will most likely arm you with many questions to ask should you decide to contact a lawyer. Following any required steps outlined in your policy will also help your attorney if your case ends up in court. (It is not uncommon for judges to throw out cases in which the insured party failed to follow the instructions included in the insurance policy.)

Keep good records. Make sure to keep track of all correspondence between you and your insurance carrier.

Conduct research. Reading this article is a step in itself — do you believe one or more of the insurance fraud categories listed above apply to your case? If so, what types of compensation are available? Keep reading to learn more.

Contact a lawyer. Insurance companies have entire departments of attorneys dedicated to fighting claims, including insurance bad faith claims. They may operate on the assumption that most insured customers will give up in the face of this seemingly insurmountable obstacle. In most cases, they're right. However, an individual who has a good case and is wise enough to hire an experienced law firm has a good chance of winning his or her case. The best insurance fraud firms employ attorneys who formerly worked in the insurance industry. These attorneys speak the language of the insurance carriers, know the industry inside and out and therefore have the best shot of persuading your carrier to come to the table.

Forms of Compensation

If your insurance company is found liable for insurance fraud, you can receive far more than the amount covered in your insurance policy. The legal justification for this compensation is found in your state's laws and regulations, such as Section 3300 of California's Civil Code, which states, in part:

For the breach of an obligation arising from contract, the measure of damages, except where otherwise expressly provided by this code…is the amount which will compensate the party aggrieved for all the detriment proximately caused thereby, or which, in the ordinary course of things, would be likely to result therefrom.

In other words, you may be able to recover damages for any harm — including emotional distress and other factors — caused by your insurance company's failure to honor your policy. Other states have similar laws to compensate insured persons for damages beyond those covered in their policies.

Depending on the circumstances, causes for additional compensation may include:

  • Emotional distress
  • Interest on the money that should have been provided
  • Consequential damages, or money the insured party had to pay out due to the denial of a valid claim
  • Punitive damages

Punitive damages are usually awarded when dishonesty, deception or fraud are present. In many jurisdictions, judges and juries use pre-established formulas to arrive at a value for these damages. An insurance fraud lawyer can help you determine whether these forms of compensation apply to your specific case.

Insurance Fraud Laws

Given that every state has laws requiring insurance companies to act in good faith, one would think that the insurance industry would take extra precautions to refrain from fraudulent activity. Unfortunately, in many situations this is not true. First and foremost, there are no federal insurance laws — and therefore there is nothing for the feds to enforce. Strangely, while industries such as banking, pharmaceuticals and interstate commerce are closely regulated by the federal government, insurance isn't regulated at all. Some blame lobbyists, others politicians, but in any case the result is that states are forced to deal with the issue themselves. And when they fail to do so, victims of insurance fraud have no other recourse but to contact an insurance fraud attorney for help.

Did You Know?

Car accidents, hurricanes and refusal to pay supplemental disability payments are three of the most common examples of insurance fraud.


The U.S. insurance industry collects nearly $1 trillion in premiums each year.