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Why low settlements are a common bad faith insurance tactic
November 15, 2021
Maybe your property flooded, causing catastrophic damage and mold growth. Perhaps you run a business and had a lengthy interruption that cost you tens of thousands of dollars in revenue. The insurance policies that you carry help protect you from such unpredictable losses.
Both state and federal laws mandate that insurance providers comply with the terms of the policies that they write. Unfortunately, insurance companies still try to diminish or deny valid claims in bad faith. Low settlement offers are one of the common forms of bad faith insurance that could affect what you receive when you have a valid claim.
Why are insurance settlements so risky for claimants?
Many forms of bad faith insurance are so obvious that the company risks additional losses. Denying a valid claim is hard to explain away. However, offering a low settlement is just good business. The company can claim that you agreed to accept the low amount they offered.
When you agree to
an insurance settlement
, you effectively absolve the insurance provider of responsibility for future financial losses. They only have to pay you the amount you agreed to in the settlement and have no responsibilities to you if you incur additional losses after accepting that settlement.
The risks here are obvious. The insurance company knows better than you what your claim might cost in the long run. If they are eager to offer a settlement that doesn’t seem to cover your costs, then the settlement is likely not advantageous for you.
Those offered an abysmal settlement amount can counter to get the amount of compensation they deserve. Those who have already accepted such a settlement may have to consider holding the insurance company responsible for its bad faith practices. Recognizing an inappropriately low settlement as a form of
bad faith insurance
could protect you from financial losses.