Is Your Professional Liability Insurer Acting in Bad Faith?

Accountants, realtors, architects, chiropractors, and consultants are professionals in the service economy. These professionals must be exceptionally skilled, with their expertise clearly benefiting clients.

This sector of the workforce is vulnerable to allegations of negligence or malpractice, which could lead a client to sue. A disgruntled client's claims can provoke a costly legal battle that results in financial and reputational harm.

Professional liability insurance shields you from such risks. Unfortunately, having an active policy isn't enough. Your claim must meet the standards listed in your policy to trigger coverage. And even then, coverage is not guaranteed: An adjuster has to review your claim to determine whether it's worth honoring.

Your business and personal finances could be in serious trouble if your claim is denied. In this article, we'll go over professional liability denials – how they happen, why they happen, and what a professional liability lawyer can do for you if there's reason to believe your claim has been denied in bad faith.

Take it from an attorney: Professional liability insurance is a worthy investment. That said, liability insurance is only effective if a claim is approved. A denied claim won’t protect you from judgments, settlements, and other court-related costs. Here are a few reasons why the insurance company might deny a professional liability claim:

Unfortunately, policyholders don’t always understand how their policy works or know what’s included in coverage.

Paying your premiums on time doesn’t guarantee coverage. The following activities can indicate intentional wrongdoing, resulting in a definitive claim denial:

• Prior knowledge of a problem

• Work outside the coverage area 

• DiscriminationCriminal acts 

• Intellectual property infringement 

Additionally, every insurance policy has a set policy limit that is directly tied to the premium rates you’ve been paying. Smaller premiums often translate to a smaller potential payout.

It’s relatively common for insurance adjusters to conduct insufficient investigations that result in denied claims, which is considered an act of bad faith in Colorado. “Refusing to pay claims without conducting a reasonable investigation based upon all available information” violates Colorado law. Insurance companies doing business in Colorado are legally obligated to do due diligence, including overseeing a thorough investigation. C.R.S. 10-3-1104 (1)(h)(IV)

A denied professional liability claim can be more than just frustrating; it could make you an easy target for your claimant’s malpractice attorneys. Denver professionals with a denied claim may also struggle to secure future coverage, from professional liability to even home or auto insurance.

If the error lies with your insurer, shouldn’t you fight for the protection you paid for? Liability attorneys can help you file the appeal with your insurance company. A great professional liability attorney will advise you on whether your case violates Colorado’s bad faith laws.

In Colorado, bad faith is generally an insurer’s unreasonable refusal to pay a claim and act in good faith. The following actions constitute bad faith:

The insurance company asked for evidence that was burdensome to obtain without an expressed reason for doing so. C.R.S. 10-3-1115(2)

The insurance company denied a claim by incorrectly applying an exclusion clause that didn’t fit the situation. Misrepresenting an insurance policy's benefits, advantages, conditions, or terms is illegal. C.R.S. 10-3-1104 (1)(a)(I)

Negligible efforts to update you on the status of your claim, from unreasonable delays to failing to notify you of requirements, could violate Colorado law. C.R.S. 10-3-1104(1)(h)(XIV)

You have a right to a reasonable explanation based on the applicable facts and a right to timely updates. In Colorado, that’s 60 days. Delays must be explained in writing every 30 days. 3 CCR 702-5

To prove bad faith, you must demonstrate that the company did not use the available information to come to a reasonable conclusion regarding your claim, which caused you to suffer. The extent of the suffering would entitle you to a platter of damages.

In short, money. Your liability insurance provider will be legally obligated to financially compensate you for what you would have been entitled to if your claim had been approved. And we’re just getting started…

Win a bad faith lawsuit against your insurance company for a wrongfully denied professional liability claim, and you can expect your insurer to cover any legal fees you incurred. Get your bad faith case covered, as well as the legal defense for your client’s suit against you and any damages that the court has ordered you to pay.

You can expect to recover the following damages if your bad faith case is successful:

• Economic – Compensation for direct final loss as the result of your insurer’s conduct

• Non-economic – Compensation for any harm you endured that isn’t financially measured, including but not limited to emotional distress and inconvenience

And if you can prove your insurer acted willfully in bad faith, you may also be entitled to punitive damages. There may also be a claim for breach of contract. 

Your insurer can’t retaliate by canceling your policy

Even if your professional liability insurer is angry that they took a gamble with you and lost, don’t worry: insurers can’t retaliate by upping your rates or canceling your policy. State law protects you from such actions. If you suspect retaliatory action, get in touch with a Colorado professional liability attorney. 

If you have been sued and suspect your insurer has denied your claim in bad faith, our professional liability lawyers are ready to assist you. Call (303) 688-0944 to begin your case assessment.