What are my legal remedies if a health insurance company or plan refuses to pay a claim for a benefit or service?

In a circumstance where an insurance company or health service plan (HMO) has denied a claim for a benefit or service, has upheld the denial through internal appeal and grievance procedures, and ERISA does not govern the policy or plan, an insured or plan member who has been denied a benefit or service can sue on a number of legal theories, including breach of contract, breach of the implied covenant of good faith and fair dealing (bad faith) and under some circumstances infliction of emotional distress and fraud.

The two primary legal remedies available in most cases are breach of contract to recover the value of the denied benefit or service and any incidental damages and bad faith. Bad faith is the unreasonable denial of a benefit and may allow recovery for emotional distress, interest on out-of-pocket losses, damages for any attorney fee obligations incurred and, in limited circumstances involving malicious or willful misconduct, punitive and exemplary damages. These legal remedies are ones that are available under state law, not federal law. In addition, especially with regard to the tort remedies of bad faith, infliction of emotional distress and fraud, the availability of the remedy and the nature and extent of damages recoverable vary from state to stat.