Insurer "bad faith" has been a significant and growing problem ever since consulting heavyweight McKinsey & Company advised various insurers on financial engineering, and how to "manage" claims. For the history, see Professor Jay Feinman’s great book – Delay, Deny, Defend – here is the web page for the book. Jay is a Distinguished Professor at Rutgers.
The short-hand term "bad faith" actually is a misnomer. The real issue is that many insurers (not all) and their agents have built a business model based on refusing to pay claims. Insurers using this business model time and again breach the duty of good faith and fair dealing. Thus, instead of acting fairly and responsibly, they follow McKinsey’s financial engineering advice on looking for excuses to refuse to pay claims instead of fairly evaluating and paying claims.
I’ve often seen the lack of good faith in both my professional life and personal life. Some of the most egregious examples involve failure to pay for expensive treatments for cancer patients – the stories are real, the examples are legion, and people die and/or suffer terribly because of the practices of many (but not all) health insurers. Egregious also is the label for insurers which refuse to pay asbestos claims – many still trump up excuses, and courts let them get away with it, thus helping to worsen the problems of mass tort litigation.
For those interested in the subject, Rutger’s is sponsoring a great looking February 29, 2012 conference on the subject of "Bad Faith and Beyond." The speakers are top notch. The agenda is pasted below and includes heavyweights on both sides of the issues.
Bad Faith & Beyond Conference – Agenda
|9:15-9:45||Registration and Coffee|
Theoretical Approaches to Bad Faith
The Law of Claims Practices
Empirical Perspectives on Claims Practices Regulation