Understanding the Difference Between Denied Claims and Bad Faith Insurance

Posted on January 21, 2025

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Frances Badayos | author

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ICHQ | Site Author

Accidents happen. Natural disasters happen. Property can be damaged in many different ways. The primary reason why you have property insurance—and pay those expensive premiums every month—is to ensure that you have financial protection if something goes wrong. For that reason, it is especially stressful to deal with a denial of your claim. It is even more frustrating if you believe that the insurance company rejected your claim in bad faith. Here, our New Orleans bad faith insurance attorney provides an overview of the difference between a denied claim and a bad faith denial of insurance claims.

Three Steps to Take After an Insurance Claim Denial

Was your property insurance claim denied? Whether you are a homeowner or business owner, it is imperative that you take immediate action to protect your best interests. Here are three important steps to take after a property insurance denial in New Orleans:

  • Save the Denial Letter: If an insurance company denies a property damage claim, it must do so in writing. One of the first steps in challenging a denial is to save that letter. Notably, the property damage denial letter is critical because it outlines the insurance company’s specific reasons for rejecting the claim. It serves as a starting point for understanding what went wrong and how you might challenge the decision.
  • Preserve Supporting Evidence: All successful property insurance appeals are built on a strong foundation of supporting evidence. Homeowners and business owners should gather and preserve all documents and evidence related to their claim. Some of the most notable examples include photographs, videos, police reports, repair estimates, and any communication that you have had with the insurance company. You should ensure that all documentation is well-organized.
  • Speak to an Attorney: If an insurance company has denied your property damage claim, it means that it does not want to pay out benefits. With that being said, it does not mean that you are out of options. Still, you need to be prepared for a fight. Do not go up against a big insurance company alone. A New Orleans property insurance lawyer with experience handling appeals can protect your rights.

What is Bad Faith Insurance?

A denial of insurance benefits may be bad faith by the insurance company—though that is not always true. It is important to understand what “bad faith” means in this context. As explained by the American Bar Association (ABA), an insurance company acts in bad faith if it “fails to act fairly, honestly, or reasonably in handling a policyholder’s claim.” Insurers have a duty to handle claims in good faith— they must investigate thoroughly, communicate clearly, and pay valid claims. Bad faith practices by an insurance company can give a policyholder the right to file a legal claim.

Notably, bad faith insurance laws arise at the state level. Each state sets its own rules for how insurers must handle claims.

While there are some similarities from state to state, important differences also exist. Under Louisiana law (La. Rev. Stat. § 22:1892), property insurance companies can be held liable for bad faith settlement practices. The law generally requires insurers to pay valid claims within 30 days of receiving adequate proof of loss. If an insurer unjustifiably delays payment or denies a claim without cause, policyholders in Louisiana can seek compensation, including for the full value of the original claim, court costs and attorney’s fees, and bad faith damages.

Understanding the Difference Between a Denial and Bad Faith

Was your property damage claim denied? Are you considering taking action to hold the insurance company accountable so that you can get your benefits? You have the right to appeal a property insurance denial—and you may or may not have an additional claim for bad faith damages. A denial of coverage and bad faith are not the same thing. Though, an unjustified denial could potentially give rise to a bad faith insurance claim. For the purposes of bad faith insurance laws, denials can be split into two broad categories:

     1. Valid Denial: A valid denial is one that the property insurance company has reasonable justification to issue. It generally occurs when the insurer provides a clear, legitimate reason for the denial—such as the claim is excluded under the policy or insufficient evidence was provided. To be clear, a valid denial can still be challenged. In some cases, an insurance company may have had a reasonable excuse to deny coverage, but the policyholder may be able to bring a successful appeal by providing additional evidence.

     2. Bad Faith Denial: A bad faith denial is an unjustified denial. It is one that the property insurance company lacked reasonable cause to decline to pay benefits. In other words, a bad faith denial occurs after the insurance company violated its legal obligations to use good faith settlement practices to investigate and, if appropriate, pay the claim.

The Bottom Line: A denial occurs when the insurance company declines to pay a claim. The insurance company must prove the reasoning for its denial in a written letter. The policyholder can appeal a denial of benefits. If the denial was in bad faith—meaning the insurance company did not have any reasonable basis to deny the claim—the policyholder may also have an additional legal claim to seek compensation for bad faith damages.

Bad Faith Denial of Insurance Claims (Most Common Examples)

A denial becomes bad faith when the insurer knowingly or recklessly disregards its obligations to the policyholder. If you suspect bad faith, you should consult with an attorney right away. Here are some of the most notable examples of bad faith insurance practices in New Orleans:

  • Unreasonable Delay: Insurers are required to process claims promptly. When an insurer delays payment or investigation without a valid reason, it may constitute bad faith.
  • Failure to Investigate: Insurers must conduct a thorough and fair investigation before denying a claim. If an insurance company dismisses a claim without gathering adequate information or ignores evidence provided by the policyholder.
  • Material Misrepresentation: Material misrepresentation occurs when an insurance company misrepresents policy terms, coverage, or facts to deny or undervalue a claim
  • Unjustified Denial: Finally, an unjustified denial is, by definition, bad faith. If the denial is not supported by the policy terms or evidence, the insurer can be held accountable.

How Our New Orleans Bad Faith Insurance Lawyers Can Help

Dealing with the denial of a property insurance claim can be challenging—especially if you suspect bad faith settlement practices by the insurance company. Insurance companies have a duty to use good faith settlement practices. They must be held accountable for bad faith. At Insurance Claim HQ, we have extensive experience handling complex claims. Our record of case results demonstrates what we can do for policyholders—both homeowners and businesses—whose rights have been violated by their insurance companies. Our New Orleans property insurance attorneys handle both denials and bad faith settlement claims.

Schedule Your Free Consultation With Our New Orleans Bad Faith Insurance Lawyer

At Insurance Claim HQ, our New Orleans bad faith insurance claim attorney has the professional legal expertise that you can rely on—even when dealing with a complex claim. If you have any questions or concerns about bad faith insurance claims, we are here as a legal resource. Contact us right away to set up your free, no-obligation case review with a top-tier attorney. Our firm handles bad faith insurance cases in New Orleans, Louisiana, and throughout the wider region.