If you bought your own disability income or life insurance policy and the insurer denied, delayed, or terminated your benefits without a reasonable basis, you may have a bad faith claim that reaches well beyond the benefits themselves. Unlike claims governed by ERISA, a bad faith action on a privately purchased policy can expose the insurer to punitive damages, statutory interest, and your attorneys’ fees. The Garner Firm litigates these cases in Pennsylvania and New Jersey, and we handle the threshold question most firms get wrong: whether your policy is subject to ERISA at all. As an insurance bad faith lawyer, we hold carriers accountable for how they handle your claim.
That distinction decides your case. Get it wrong and you file a bad faith suit that is dismissed on preemption grounds. Get it right and you may hold the insurer accountable for how it handled your claim — not just for the money it withheld.
Why the source of your policy determines your remedies
Two people can be denied by the same insurer, for the same condition, on the same policy language, and have completely different legal rights. What separates them is where the policy came from.
If your employer provides the coverage, the plan is almost certainly governed by ERISA, and federal law displaces state bad faith remedies. The Supreme Court held in Pilot Life that ERISA “pre-empts state common law tort and contract actions asserting improper processing of a claim for benefits under an insured employee benefit plan,” reasoning that ERISA § 502(a) was intended to be the exclusive vehicle for such claims. State bad faith law is not rescued by ERISA’s insurance saving clause when it is rooted in general tort and contract principles rather than being specifically directed at the insurance industry.
If you bought the policy yourself — through an agent, a professional association, or a broker — ERISA generally does not apply and state insurance law governs in full. This is the world of individual disability income policies sold to physicians, dentists, attorneys, and business owners, and of individually underwritten life insurance. It is not a small market: annualized non-cancelable individual disability premiums in force in the United States exceeded 4.1 billion dollars in 2019.
The gray zone matters most, and the burden is on the insurer. Under the Department of Labor safe harbor, 29 C.F.R. § 2510.3-1(j), certain employee-pay-all voluntary arrangements fall outside ERISA. The Third Circuit has made clear that all four safe harbor criteria must be established, and that the burden rests with the party asserting the exception. The decisive question is usually employer endorsement: whether the employer “has strayed from the equilibrium of neutrality,” which turns on a holistic assessment of material employer involvement in creating or administering the program rather than a mechanical checklist. Selecting a sole carrier and setting eligibility criteria can be enough to constitute endorsement and pull the coverage into ERISA. Association-issued and multiple-employer arrangements raise related questions. We analyze policy documents, applications, premium-payment history, enrollment materials, and plan filings to determine which regime applies before choosing a forum and a theory.
Individual disability income insurance bad faith
Individual DI policies are bought by high earners precisely because they are stronger than group coverage: true “own occupation” definitions, residual and partial benefits, non-cancelable and guaranteed-renewable terms, and benefits that are typically tax-free. Those same features make them expensive claims for insurers to pay.
Conduct we see and litigate:
- Rewriting “own occupation.” Where a policy defines occupation by reference to a recognized medical specialty, the insurer cannot redefine it by counting billing units or comparing generalist tasks. The Third Circuit rejected exactly that approach for an interventional radiologist whose specialty involved procedures a diagnostic radiologist could not perform.
- Paper reviews over treating physicians. File-review physicians who never examine the claimant, retained repeatedly by the same insurer, producing opinions that consistently favor denial. Clinical guidance cuts against this: in persistent pain, physicians “must not over-interpret either the presence or absence of objective findings unless they are consistent with the history and physical examination,” and assessment should include physical functioning, not imaging alone.
- Surveillance and social media investigation used selectively — a few hours of activity presented as proof of capacity while surrounding recovery time is ignored.
- Mental-nervous and self-reported-symptom limitations stretched to cap benefits for conditions with organic bases, including chronic pain, long COVID sequelae, and cognitive impairment.
- Retroactive pre-existing condition and misrepresentation defenses raised years into a claim, after premiums have been accepted throughout.
- Manufactured occupational reclassification at claim time, inconsistent with the occupation class the insurer underwrote and priced.
- Lowball buyout offers timed to arrive when a claimant’s savings are exhausted.
- Indefinite delay — repeated requests for records already produced, serial examinations, and “under review” status maintained for months without decision.
If your policy is individual, none of this is shielded by ERISA. The claim file, internal guidelines, reserve and claim-closure data, compensation of file reviewers, and handling patterns in other claims are all potentially discoverable. That discovery is often what moves these cases.
Carriers we handle claims against: Unum, Northwestern Mutual, Guardian and Berkshire Life, MassMutual, Principal, Standard, Ameritas, Hartford, MetLife, Prudential, Lincoln Financial, New York Life, and others.
Life insurance bad faith and wrongful denial
Life insurance denials arrive at the worst possible moment, and the insurer’s leverage is that beneficiaries are grieving and unrepresented. Recurring patterns:
- Contestability-period rescissions. Most policies allow the insurer to contest for two years after issue, and insurers use that window to order full medical histories and hunt for discrepancies. Claimants should understand what the standard actually is in New Jersey, because it is demanding: an insurer need not show the insured intended to deceive, and even an innocent misrepresentation can constitute equitable fraud justifying rescission. The fight is therefore over materiality — whether the misstatement would naturally and reasonably have influenced the underwriter’s decision to issue at all, to assess the risk, or to set the premium — and over whether the question asked was objective or subjective. Objective questions call for facts within the applicant’s knowledge, such as whether a physician examined or treated the applicant; subjective questions probe the applicant’s state of mind about their own health, and courts review answers to those more leniently. An insurer also generally has no duty to independently investigate an applicant’s medical history absent knowledge of conflicting facts, which is why the record built at underwriting matters so much later. [
- Post-contestability denials, where the insurer is generally limited to narrow defenses but denies anyway.
- Manufactured lapse. Premium notices sent to stale addresses, grace periods miscalculated, reinstatement requests ignored, or automatic-premium-loan provisions not applied as written.
- Cause-of-death and exclusion disputes — suicide clauses, intoxication and drug exclusions, aviation and hazardous-activity exclusions, and “accidental means” fights on AD&D riders.
- Beneficiary disputes and interpleader — competing claimants after divorce, defective beneficiary changes, slayer-statute questions, and insurers using interpleader to sit on funds.
- Open-ended investigation with no decision.
What Pennsylvania and New Jersey law lets us recover
Pennsylvania — 42 Pa. C.S. § 8371. On a finding of bad faith toward the insured, a court may award interest on the amount of the claim from the date the claim was made at the prime rate plus 3%, punitive damages, and court costs and attorneys’ fees. The governing test, adopted by the Pennsylvania Supreme Court in Rancosky, requires clear and convincing evidence that (1) the insurer lacked a reasonable basis for denying benefits under the policy and (2) the insurer knew of or recklessly disregarded that lack of a reasonable basis. Critically, a motive of self-interest or ill will is not a prerequisite — such evidence is probative of the second prong, but knowledge or recklessness suffices. There is also no heightened standard of proof for punitive damages under the statute, because § 8371 does not distinguish between bad faith generally and bad faith supporting punitive damages. What the statute does not reach is ordinary error: simple negligence or bad judgment is not bad faith.
New Jersey — common law. New Jersey recognizes a first-party bad faith claim, but the “fairly debatable” standard is a real hurdle. A plaintiff must show that no debatable reasons existed for the denial. This generally means a claimant who could not have won summary judgment on the underlying substantive claim cannot assert bad faith. Simple negligence will not do, and mere failure to settle a debatable claim is not bad faith. Punitive damages on a first-party denial are generally unavailable absent egregious circumstances, and the New Jersey Supreme Court has expressly declined to resolve the availability of counsel fees in this posture. That is precisely why, in New Jersey, the coverage case and the bad faith case must be built together — the strength of the benefits claim is the gating condition for the conduct claim.
Practical consequence. On an individual policy in Pennsylvania, exposure is not capped at the benefit withheld. That changes settlement dynamics, and it is why the ERISA-versus-individual analysis is the first thing we do.
The ERISA contrast. Section 502(a)(1)(B) recovers benefits due and enforces rights under the plan; § 502(a)(3) permits limited equitable relief; fees are discretionary under § 502(g). Punitive damages are not available — ERISA’s fiduciary-breach provision supplies no express authority for a punitive award to a beneficiary.
How we build a bad faith case
- Policy and ERISA analysis. Every governing document, the application, enrollment materials, premium records, and plan filings — including whether the employer stayed neutral or endorsed the program.
- Claim file reconstruction. The complete file, including internal notes, claim-manager entries, reserve entries, referral records, and the identity and compensation of every reviewing physician.
- Conduct discovery. Claim-handling guidelines, training materials, performance metrics, vendor relationships, and patterns across similar claims — what distinguishes a mistake from a practice. Under Rancosky, shoddy claims handling, non-responsiveness, and haphazard investigation can support bad faith without any proof of ill will.
- Expert development. Treating and independent physicians, vocational and occupational experts, claim-handling standards experts, and economists where earning capacity is at issue.
- Litigation and resolution. Filing in the right forum, moving for the discovery insurers resist, and trying the case when the offer does not reflect the exposure.
Other first-party insurance bad faith we handle
- Long-term care insurance — benefit-trigger disputes, ADL and cognitive-impairment assessments, elimination-period gaming, facility-licensure denials, and rescission attempts.
- Accidental death & dismemberment — “accidental means” versus “accidental results,” intoxication and medical-treatment exclusions.
- Critical illness, hospital indemnity, and specified-disease policies.
- Health insurance denials outside ERISA — individual marketplace and church-plan coverage.
- Annuity and structured settlement disputes.
Frequently asked questions
Can I sue my disability insurer for bad faith?
It depends on who bought the policy. If you purchased it yourself, state bad faith law generally applies and punitive damages, interest, and attorneys’ fees may be available in Pennsylvania. If your employer provided it, ERISA usually preempts those remedies and limits you to the benefits due.
How do I know whether my policy is governed by ERISA?
Employer-sponsored group coverage is presumptively ERISA-governed; a policy you bought individually usually is not. In the middle cases, the party claiming the DOL safe harbor must establish all four of its criteria, and the key question is whether the employer stayed neutral or materially involved itself in creating or administering the program.
What damages are available in a Pennsylvania bad faith case?
Under 42 Pa. C.S. § 8371, a court may award interest on the claim from the date it was made at the prime rate plus 3%, punitive damages, and court costs and attorneys’ fees, in addition to the benefits owed. You must prove by clear and convincing evidence that the insurer had no reasonable basis to deny and knew of or recklessly disregarded that fact — but you do not have to prove ill will.
Is New Jersey law different?
Yes, and it is harder on first-party claims. New Jersey requires a showing that no debatable reasons existed for the denial, negligence is not enough, and the Insurance Fair Conduct Act’s treble-damages remedy is limited to uninsured and underinsured motorist claims rather than disability or life policies.
My life insurer says my husband misstated something on his application. Is the policy void?
Not automatically. In New Jersey the misstatement must be material — meaning it would naturally and reasonably have affected the underwriting decision or the premium — and answers to subjective questions about one’s own health are reviewed more leniently than answers to objective questions about tests and doctor visits.
How long do I have to file?
Deadlines vary by claim type and state, and policies often contain contractual limitations periods shorter than the statutory period.
Does filing an appeal hurt my ability to sue later?
No. On an individual policy the internal appeal is optional but still forces the insurer to commit to its reasoning.
What does it cost to hire you?
We typically handle these matters on a contingency basis, with no fee unless we recover. Hourly arrangements are available as well.
Contact The Garner Firm If You Believe Your Insurer Has Acted in Bad Faith
If a disability, life, long-term care, or AD&D insurer has denied, delayed, or terminated your benefits, we will review your policy and your denial letter at no charge — including the threshold question of whether ERISA applies. Contact us today online or by phone at (215) 645-5955.