The American Association of Justice (AAJ) has released a report which highlights how the insurance industry uses credit scores to discriminate against policyholders and uses policy language aimed at confusing customers.

• Discriminating By Credit Score. What does a person's credit score have to do with insurance rates? A lot, according to the AAJ report. It revealed that the insurance industry is using credit scores to discriminate against policyholders. In fact, it claims that the industry raked in an extra $67 billion in profit between 2003 and 2006 by charging higher premiums to customers with lower credit scores.

The underlying theory is that people with lower credit scores are more likely to file a claim than those with higher credit scores. Whether or not that's true, insurance companies seems to be using it to their advantage. The AAJ's report noted that the Consumer Federation of America uncovered documents from GEICO that compared two people with identical driving records. One had bad credit, the other had good credit. The result was that the person with bad credit paid 90 percent more in premiums for the same coverage.

• Confusing Customers. When it comes to confusing customers about what's covered under their insurance policies and what's not, the AAJ says that insurance companies know exactly what they're doing. It points to the numerous lawsuits filed by victims of Hurricane Katrina who lost their homes. In many of those suits, insurance companies refused to pay claims because flood damage was not covered under the policies (that has to be purchased separately through the Federal Emergency Management Agency - FEMA).

Insurers pointed to confusing policy language that differentiated between water and wind damage known as anti-concurrent clauses which negate coverage when water damage is the primary reason for the loss. Those clauses are generally buried deep within insurance policies and consumer advocate groups say that the primary reason for using these clauses is to confuse customers. The AAJ summed it up by quoting from a recent case heard by the South Carolina Supreme Court which said, "[I]nsurers generally are attempting to convince the customer when selling the policy that everything is covered and convince the court when a claim is made that nothing is covered."

To view the report, go to the AAJ's website at www.justice.org/ and click Newsroom and then Research.

If your insurance company has acted in bad faith, contact a bad faith insurance attorney about your situation. Consultations are free, without obligation and are strictly confidential.