Insurance companies typically want to avoid litigation with their clients. It is expensive to go to court to defend against a bad faith claim, and may lead to bad press as well.
Still, this does not mean that companies approve all claims, no matter how dubious. Instead, insurers typically carefully investigate all claims before issuing a settlement check or deciding that it does not owe any money.
The insured person or third party has obligations as well. For example, they may be required to report the relevant incident to the insurance company within 24 hours of it happening. They will be expected to answer questions about what happened, who caused the accident (if anyone), and the extent of their injuries.
After the check or claim denial arrives, the party that made the claim may be unsatisfied, even when the insurer’s decision was sound and based on the evidence. Typically, insurance companies give claimants the chance to appeal. To prevent the appeal from being a mere rehash of the claim process, the insurance company often requires additional examination or other evidence that the party is entitled to more settlement money.
There are several valid reasons not to approve an insurance claim. For example, the party may have waited too long, or never submitted necessary evidence like an independent medical exam. Or the incident in question may not be covered under the policy.
Still, a denied claim, or one with a settlement that is lower than expected, can be upsetting to the person who made it. If their appeal is denied, litigation might be the next step.