What Happens If an Insurance Company Won’t Pay a Claim?

When an unexpected event occurs, insurance provides a financial safety net, offering peace of mind that covered losses will be addressed. Policyholders file claims with the expectation that their insurer will promptly evaluate and pay valid claims as outlined in their policy. However, an approved insurance claim can remain unpaid, leaving individuals uncertain about how to proceed. Understanding the processes and available recourse is important for policyholders. This article explores typical timelines for claim payments, initial actions policyholders can take when payment is delayed, formal channels for resolving disputes, and potential consequences insurers may face for failing to meet their obligations.

Understanding Claim Payment Timelines

Once an insurance claim is filed, the exact timeline for payment can vary. Many states have “prompt payment laws” that set specific timeframes for insurers to acknowledge, investigate, and decide on claims. Insurers typically have around 15 days to acknowledge a claim and begin their investigation.

Following acknowledgment, insurers are required to make a decision to approve or deny a claim within a “reasonable” timeframe, ranging from 15 to 60 days, depending on state and complexity. If approved, payment often follows within 5 to 30 days, though this also varies by state regulations. For instance, some states may require payment within five business days of approval, while others allow up to 30 days.

Several factors influence claim processing and payment speed. The complexity of the claim, such as those involving multiple parties, extensive property damage, or serious injuries, can extend timelines. Incomplete documentation from the policyholder can also cause delays. The type of insurance (e.g., auto, home, health, life) and the insurer’s internal efficiency also affect processing speed. Insurers may also request extensions for reasons like needing more information or time for investigation.

Initial Steps for Addressing Non-Payment

When an approved insurance claim goes unpaid, policyholders should focus on preparation and direct communication. Begin by carefully reviewing your insurance policy, noting the terms and conditions governing claim payments. Understand your coverage limits, deductibles, exclusions, and claim procedures. This review confirms the claim falls within policy scope and all conditions are met.

Gather and organize all claim documentation. This includes the claim number, communication dates, names of insurance company contacts, and a detailed discussion log. Keep copies of every document submitted to the insurer, such as repair estimates, medical records, photographs, videos, and police reports, along with any correspondence received from them.

Next, initiate direct communication with your assigned claims adjuster to inquire about the payment status. During these conversations, be polite and professional, clearly stating your purpose and requesting an estimated payment date or a reason for the delay. Follow up every phone call with written communication, such as an email or letter, summarizing the discussion and confirming agreements.

If direct communication with the adjuster is unsatisfactory, escalate the issue within the insurance company’s hierarchy. Request to speak with the adjuster’s supervisor, explaining the lack of resolution and providing your communication log. A focused complaint, backed by documentation, can prompt intervention and expedite resolution.

Formal Avenues for Resolution

After exhausting direct communication with the insurer, policyholders can pursue formal avenues to resolve unpaid claims. One option is filing a formal complaint with the state Department of Insurance (DOI) or an equivalent regulatory body. These state agencies oversee the insurance industry, ensuring companies comply with state laws and regulations. To file a complaint, policyholders complete an online form or submit a written complaint, providing detailed information about the claim, the insurer’s actions, and all supporting documentation.

The DOI investigates consumer complaints, mediates disputes, and takes enforcement actions against companies violating regulations. While the DOI cannot act as a legal representative or force a specific settlement, their investigation can prompt the insurer to re-evaluate the claim. The agency requests a detailed response from the insurer, and their involvement encourages the insurer to address the issue.

If regulatory intervention does not resolve the matter, or if the claim amount falls within specific limits, policyholders might consider small claims court. This informal, less expensive forum allows individuals to present their case without an attorney, though legal consultation is often advisable. Small claims court limits vary by state, typically from a few thousand dollars up to $10,000 or $12,500.

For more complex cases, or when the claim value exceeds small claims court limits, legal action through an attorney may be necessary. An attorney specializing in insurance disputes can review the policy, assess the merits of the claim, negotiate with the insurer, and, if warranted, file a lawsuit. Such lawsuits might allege breach of contract if the insurer failed to uphold the policy’s terms or, in some instances, a “bad faith” claim. A bad faith claim asserts that the insurer acted unreasonably or maliciously in delaying or denying a valid claim, potentially entitling the policyholder to additional damages beyond the original claim amount.

Consequences for Insurers

When an insurance company fails to pay a valid claim timely, it can face repercussions. State regulatory bodies, like Departments of Insurance, have the authority to impose penalties for non-compliance with prompt payment laws and unfair claims settlement practices. These include monetary fines, potentially ranging from tens of thousands to millions of dollars for systemic violations or repeated offenses.

Beyond regulatory fines, insurers may be required to pay interest on delayed claim payments. Many states have laws mandating that if a claim is not paid within a specified period after approval, interest begins to accrue on the overdue amount. This interest rate can vary by state, with some jurisdictions imposing rates as high as 18% annually, serving as a financial disincentive for insurers to unnecessarily prolong payments.

Insurers also face legal judgments, especially in “bad faith” cases. A bad faith claim arises when an insurer breaches its implied duty of good faith and fair dealing by unreasonably delaying, denying, or underpaying a legitimate claim. If a court finds an insurer acted in bad faith, they may be liable for compensatory damages, covering the policyholder’s original losses and any additional financial harm caused by the insurer’s misconduct.

Courts may award punitive damages in severe instances. These are intended to punish the insurer for malicious, fraudulent, or oppressive behavior and deter similar future conduct, not to compensate the policyholder. Punitive awards can be large and exceed original policy limits. Policyholders might also recover damages for emotional distress and attorney’s fees and litigation costs incurred in pursuing the bad faith claim, shifting the legal burden to the insurer.