Are You Entitled to Compensation If an Insurer Fails to Provide a Promised Benefit?

If an insurer fails to provide a promised benefit or coverage under an insurance policy, policyholders may be entitled to compensation for the insurer's failure to fulfill its contractual obligations. The type of compensation and the legal recourse available will depend on the specific circumstances of the case, such as the nature of the benefit, the cause of the failure, and whether the insurer’s actions amount to bad faith or breach of contract.

Legal Recourse for Failure to Provide Promised Benefits

1. File a Formal Complaint with the Insurer: The first step if an insurer fails to provide a promised benefit is to file a formal complaint with the insurance company. Review the policy terms carefully to ensure that the benefit you are seeking is clearly covered. If the insurer has wrongfully denied or delayed payment, you should request a written explanation of the denial or failure to provide the benefit. It's important to document all interactions with the insurer, including emails, phone calls, and written correspondence.
2. Appeal the Denial or Discrepancy: Many insurance policies provide an internal appeals process for denied claims or disputes over promised benefits. If the insurer fails to provide a benefit that was clearly promised in the policy, you should initiate the appeal process as per the insurer’s guidelines. Provide any additional documentation that supports your claim, such as medical records, receipts, or proof of loss, to demonstrate that the benefit is owed.
3. Bad Faith Claims: If the insurer unreasonably delays or refuses to provide a promised benefit despite clear contractual obligations, this may constitute bad faith. Bad faith occurs when an insurer acts dishonestly, unreasonably, or unfairly in handling claims, or when they fail to investigate or pay a legitimate claim. Examples of bad faith include:
   • Unjustified denial of coverage for a valid claim.
   • Delays in processing a claim without reasonable justification.
   • Misrepresentation of policy terms or benefits.
   • Failure to communicate adequately with the policyholder.
   If you believe the insurer's failure to provide the promised benefit is in bad faith, you may be entitled to compensatory damages (for losses resulting from the insurer's failure), punitive damages (to punish the insurer for egregious behavior), and attorney’s fees if you take legal action.
4. File a Complaint with Regulatory Agencies: If internal resolution methods are unsuccessful, policyholders can file complaints with state regulatory agencies, such as the state insurance commissioner. The state insurance department can investigate allegations of unfair or unlawful practices by insurers and, if necessary, impose penalties or fines on the insurer. They may also facilitate a resolution between you and the insurer.
5. Breach of Contract Lawsuit: If the insurer refuses to pay a promised benefit despite your efforts to resolve the matter, you may have grounds to file a breach of contract lawsuit. A breach of contract occurs when an insurer fails to fulfill the terms of the insurance policy. In this case, the policyholder may seek:
   • Compensatory damages for any financial losses caused by the insurer’s failure to provide the promised benefit.
   • Consequential damages for any additional losses caused by the failure, such as costs related to delayed treatment, repairs, or financial hardship.
   • Specific performance (forcing the insurer to honor the policy terms), although this is more common in certain types of policies, such as life insurance.
6. Class Action Lawsuit (If Applicable): If the insurer's failure to provide promised benefits affects a large group of policyholders, a class action lawsuit may be an option. This allows multiple individuals to come together to challenge the insurer’s actions in a single legal proceeding. A class action is typically filed if there is a widespread practice of failing to provide promised benefits, such as systematically denying claims or refusing to pay out coverage on valid claims.
7. Consult Legal Counsel: If the insurer's failure to provide the promised benefit is causing significant financial hardship, it is advisable to seek legal counsel. An attorney specializing in insurance law can help assess your case, review the policy, and determine whether the insurer's actions constitute bad faith or breach of contract. A lawyer can also assist with filing a lawsuit, representing you in court, and negotiating with the insurer to ensure you receive the compensation you are entitled to.

Example

Suppose you have a health insurance policy that covers emergency medical services, but the insurer refuses to cover the cost of an emergency procedure that meets all the policy requirements. You have followed the proper claims process and submitted all the necessary documentation, but the insurer claims the procedure isn’t covered, despite clear language in the policy stating it is.

• Step 1: Review the insurance policy to confirm the benefit should be covered.
• Step 2: Contact the insurer and request a detailed written explanation for the denial.
• Step 3: Appeal the decision using the insurer’s formal appeals process, providing medical records and any supporting documentation.
• Step 4: If the insurer still refuses to provide the promised benefit, file a complaint with your state insurance commissioner.
• Step 5: If the matter remains unresolved, consult with an attorney to evaluate the possibility of pursuing a bad faith claim or breach of contract lawsuit.

Compensation for Failure to Provide Promised Benefits

If an insurer fails to provide a promised benefit, the compensation you may be entitled to can include:

• Reimbursement for the amount owed under the policy.
• Compensatory damages for any financial losses you suffered due to the delay or denial.
• Punitive damages in cases of bad faith, where the insurer's actions were egregious or malicious.
• Attorney’s fees if you prevail in legal action against the insurer.

Conclusion

If an insurer fails to provide a promised benefit, policyholders are generally entitled to compensation for the insurer’s failure to honor the policy terms. Legal recourse options include filing an appeal, submitting a complaint to regulatory agencies, pursuing a lawsuit for breach of contract or bad faith, and potentially seeking damages for any harm caused by the insurer's failure to act in good faith. Understanding your rights and seeking legal assistance when necessary can help ensure that you receive the compensation you are owed.