As an insurance company, it is crucial that you promptly pay valid claims and do not engage in games. Failure to do so can result in a snowball effect, causing a small claim to become much larger. This point is illustrated in this case, where an insurance claim for $500,000 initially started at $250,000. Due to the insurance company’s improper handling of the claim, they paid the victim millions of dollars.
What happened was that the insurance company had a claim against it for $250,000, and they failed to pay it for over 400 days, which is more than a year. By not paying the claim, they ended up taking an $8.5 million hit to their bottom line to settle a lawsuit. This serves as a crucial lesson for insurance companies to handle claims properly. Most states have specific regulations for handling claims in good faith, which insurers must follow. While it’s important to investigate claims to ensure their legitimacy, dragging your feet on paying a valid claim can quickly escalate the situation.
In this particular case, paying the $250,000 upfront would have eliminated almost $10 million in costs, including legal fees and penalties. Additionally, failure to pay claims in a timely manner can lead to complaints filed against the insurance company for bad faith claims processing, putting their insurance license at risk.