First Party Bad Faith
As insurers are well aware, the major motivation for obtaining disability insurance is to provide funds during periods when the ordinary source of the insured’s income—his earnings—has stopped. The purchase of such insurance provides peace of mind and security in the event the insured is unable to work. To protect these interests it is essential that an insurer fully inquire into possible bases that might support the insured’s claim. The courts recognize that distinguishing fraudulent from legitimate claims may occasionally be difficult for insurers, especially in the context of disability policies. However, an insurer cannot reasonably and in good faith deny payments to its insured without thoroughly investigating the foundation for its denial.
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