What is Bad Faith Insurance?

Bad faith insurance refers to unethical or dishonest practices by insurance companies when handling a claim. If an insurer unreasonably delays, denies, or underpays a valid claim, it may be acting in bad faith—potentially exposing the company to legal action and extra damages beyond the original policy limits.

For injured plaintiffs, understanding bad faith is crucial when dealing with uncooperative or unfair insurance adjusters.

How do insurance companies act in bad faith?

Insurance companies are legally obligated to act in “good faith” when evaluating, investigating, and paying out claims. Bad faith occurs when they violate this duty by using deceptive tactics or unjustifiably denying coverage. These actions can harm policyholders financially and emotionally—especially when they’re already dealing with an injury or loss.

Bad faith can be first-party (your own insurer treats you unfairly) or third-party (another party’s insurer acts unfairly in handling your claim).

• Unreasonable denial of valid claims, with little or no explanation.

• Delaying claim investigations or payments without justification.

• Misrepresenting policy terms to avoid paying.

• Failing to conduct a proper investigation before denying a claim.

What are your rights in a bad faith insurance claim?

If you believe an insurer acted in bad faith, you may be entitled to file a bad faith lawsuit. These lawsuits often allow plaintiffs to recover not only the value of the original claim but also punitive damages, attorney fees, and emotional distress damages in certain cases.

Bad faith laws vary by state, so working with an attorney experienced in insurance disputes is key.

• You may sue for more than the original claim amount if bad faith is proven.

• States have different standards for proving bad faith—some require clear evidence, others apply a “reasonableness” test.

• Bad faith can involve delay, denial, or deception.

• Document all communication with the insurer to support your case.

What’s the difference between a claim denial and bad faith?

Not every denied claim amounts to bad faith. Insurers have the right to deny claims that don’t meet policy requirements. However, if they deny a claim without reasonable justification or fail to investigate properly, that may cross the line into bad faith.

The key difference lies in the reasonableness and fairness of the insurer’s conduct.

• Legitimate denials are based on clear policy exclusions or lack of coverage.

• Bad faith denials are unreasonable, unsupported, or deceptive.

• Failure to explain a denial can be a warning sign of bad faith.

• A pattern of lowball offers or delay tactics may indicate bad faith behavior.

How can you prove bad faith?

To succeed in a bad faith claim, you must typically show that the insurer acted unreasonably or knowingly failed to meet its contractual obligations. Evidence such as emails, phone records, claim files, and expert opinions can all help support your case.

State laws may define bad faith slightly differently, but the burden is usually on the plaintiff to prove misconduct.

• Collect all correspondence, including letters, emails, and phone logs.

• Request the claim file from the insurer through discovery.

• Consult experts or attorneys to interpret policy language and conduct.

• State laws set specific standards for proving bad faith—some stricter than others.

Conclusion

Bad faith insurance practices can leave injured individuals without the support they need—and deserve. If your insurer has delayed, denied, or mishandled your claim unfairly, you may have grounds to take legal action. Knowing your rights and working with a qualified attorney can help you hold insurance companies accountable and recover the compensation you’re owed.