To reduce the risk of bad-faith lawsuits, a claims representative should

• A. Seek a supervisor's approval before denying a claim.
• B. Make every effort to approve each claim.
• C. Carefully document their reasoning for denial.
• D. Check with reinsurer before denying a claim.

Answer: (C)

Clear, well-supported decision-making paired with thorough documentation reduces the risk of bad-faith lawsuits. When a claim is denied, the file should show exactly which policy provisions were applied, what facts and evidence were reviewed, what investigations were conducted, and how those elements justify the denial. This creates an auditable trail that demonstrates the decision was based on objective criteria, policy language, and applicable facts, not on guesswork or bias. It also helps when communicating with the claimant, showing transparency and reducing the chance that the denial is perceived as unfair or arbitrary.

Seeking supervisor approval before denying can be part of a solid workflow, but it doesn’t replace the need for documented reasoning. Trying to approve every claim may overlook legitimate exclusions or evidence, increasing improper payments. Checking with a reinsurer before denying isn’t usually necessary for internal claims decisions and can cause delays. The best practice is to document the denial rationale clearly and thoroughly, anchored in the policy terms and the evidence gathered.