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How AI could increase bad faith insurance claims

On Behalf of | Oct 19, 2022 | Insurance Disputes

The technology revolution has changed the world in many ways. Many insurance companies are using artificial intelligence (“AI”) to streamline their processes, increase efficiency and save costs.

Some insurance companies are using AI to review insurance claims. While the AI allows the claims to be reviewed quicker, there is a potential risk to insurance policyholders if the AI starts incorrectly denying claims. If this happens to you, you could potentially have bad faith claim.

What is a bad faith claim?

A bad faith claim is exactly what it sounds like. It alleges that an insurance company failed to act in good faith by breaching their legal duty of good faith and fair dealing.

Unlike a contract claim, where you allege the insurance company wrongfully denied your claim and breached their contract with you, a bad faith claim is a tort claim.

This is bad news for insurance companies because claims brought under tort law mean that in addition to recovering compensation for your claim losses, you can ask for attorney’s fees and punitive damages. This means insurance companies could end up paying you an extremely high sum for a mistake made by their AI.

The bad faith discovery process

Additionally, to prove your bad faith claim, you must go through the discovery process. This involves both parties collecting and sharing relevant evidence with each other.

Insurance companies have an even greater incentive to settle your claim if it is based on an AI error once you reach the discovery phase. Their AI technology is likely confidential and sharing the code for your claim as part of discovery could open them up to liability from the companies that created the code.

If you succeed in proving their AI technology was responsible for denying your claim in bad faith, there is a chance that the AI could have also denied other claims in the same way. The insurance company may want to settle your claim to avoid potential additional claims.

Review your policy carefully

You should pay attention and ask questions during the insurance claim process to find out the methods being used when assessing your claim. An experienced attorney can help you with filing a bad faith claim, if necessary.