The National League champions filed the claim in January to recoup about $15.6 million of the $17 million Bagwell is guaranteed this season in the final year of his contract, arguing he is too hurt to play because of a chronically injured right shoulder.
Bagwell, 37, will begin the season on the disabled list and acknowledged Saturday he might never play again.
But Ty Buthod, a partner for the Houston law firm Baker Botts and an outside attorney for Connecticut General Life Insurance Company, said Monday that the Astros were told a few weeks ago that their claim would be denied.
"The Astros took the position that Bagwell was totally disabled in January 2006 even though he played in September and October 2005," he said. "Connecticut General determined that there had been no adverse change in Mr. Bagwell's condition between the end of last season and the date the policy terminated on Jan. 31, 2006."
Buthod also noted that Bagwell's position in the contract was listed as "professional baseball player-non-pitcher."
"He was certainly able to perform in that occupation at the end of 2005," Buthod said.
The Astros, however, are not giving up. Wayne Fisher, an attorney for the team, said he would give the insurance company two weeks to reconsider.
"It will go to court if they don't change their position very shortly," Fisher told The Associated Press.
Fisher said Dr. James Andrews in Birmingham, Ala., deemed on Jan. 12 that Bagwell was "totally disabled to play baseball."
"For a lawyer who has 45 years of experience in this kind of thing -- big, gigantic shock, an insurance company doesn't want to pay," Fisher said.
Bagwell, perhaps the best hitter and most popular player in franchise history, missed 115 games last season after shoulder surgery but returned in time to play for Houston in the postseason. He was limited to duty as a pinch-hitter and designated hitter in the World Series against the Chicago White Sox.
He went 1-for-8 in the Series with an RBI.
Bagwell then began the spring in a contentious dispute with the club while he tried to prove he could still play. He started several spring games at first base, but had to leave early in two of those because of soreness in his shoulder. He hit .219 with two RBI but never had to make a tough throw.
Bagwell said Saturday he will consult with a doctor to see if it would be beneficial to remove bone spurs from his shoulder.
Bagwell, a four-time All-Star, holds the franchise record with 449 home runs. He has 1,529 RBI and 1,517 runs.
He is the only first baseman with 400 home runs and 200 stolen bases in his career. Bagwell has been the Astros' first baseman on opening day the past 15 seasons.