Insurance is an important safety net for California business owners. When you pay premiums to protect your business from disasters or accidents, you expect your insurer to follow the policy. In California, insurers must handle claims promptly and fairly. Still, some insurers may put profits ahead of their duties under the contract. This is often called insurance bad faith.
Knowing the warning signs of bad faith can help you protect your business. Below are common red flags to watch for during a commercial insurance claim.
Unreasonable delays
A common red flag is when your insurer slows down the claims process for no clear reason. Some review is normal, but long delays without a valid explanation can signal bad faith. You may see the adjuster ask for the same papers again, not return calls or keep pushing back inspections.
California law requires insurers to acknowledge claims promptly and conduct reasonable investigations within specific timeframes. Specifically, insurers must acknowledge claims within 15 calendar days and accept or deny claims in 40 days when you provide proof of loss. If months pass without meaningful progress on a straightforward claim, your insurer may be acting in bad faith.
Underpayment or shifting denial reasons
Another warning sign is when an insurer shifts reasons for denials. Pay close attention if your insurance company keeps changing its reasons for denying your claim. They might cite a policy exclusion initially, and switch to another reason when you provide evidence.
This tactic can indicate that the insurer is looking for excuses to avoid payment rather than fairly evaluating your claim. Legitimate claim denials are based on consistent, well-documented reasons.
Lowball settlements and estimates
As a business owner, you understand the actual replacement value of your commercial assets and local California labor and material costs. If your insurer offers a settlement that is much lower than the independent estimates you received, they may be “lowballing you.”
This often involves ignoring certain types of coverage, such as business interruption losses, or using biased software to undervalue property damage.
What you can do
If you recognize these red flags, start documenting everything, including all correspondence and conversation dates. Consider consulting a legal professional with experience in bad faith insurance who can evaluate whether your insurer has violated its obligations.
Under California law, insurers who act in bad faith may be liable for your covered losses. Additionally, the state may require them to shoulder damages such as economic losses and in some cases, punitive damages.