Introduction to Bad Faith Insurance
Insurance companies have a legal obligation to handle claims fairly, promptly, and in good faith. When they unreasonably deny, delay, or underpay valid claims, they’re acting in bad faith—a violation of insurance law.
Bad faith practices leave policyholders struggling with medical bills, property damage costs, or lost income while insurers prioritize profits. Fortunately, policyholders can fight back with the help of an insurance lawyer.
This article explains:
- What constitutes bad faith insurance
- Common tactics used by insurers
- How to prove bad faith
- Legal remedies available
- When to hire a lawyer
What Is Bad Faith Insurance?
Bad faith occurs when an insurance company unfairly handles a claim despite having a legal duty to act in good faith. Each state has laws prohibiting insurers from:
✔ Denying claims without investigation
✔ Delaying payments unreasonably
✔ Offering extremely low settlements
✔ Misinterpreting policy language
✔ Failing to communicate with claimants
Legal Definition of Bad Faith
Courts generally define bad faith as:
“An insurer’s intentional or reckless disregard for its contractual obligations to a policyholder.”
Examples of Bad Faith Insurance Practices
1. Denying Claims Without Proper Review
Some insurers automatically reject claims without thorough investigation. Example:
- A homeowner’s water damage claim is denied, citing “gradual damage,” even though the policy covers sudden pipe bursts.
2. Delaying Claims Indefinitely
Insurers may stall payments by:
- Requesting excessive documentation
- Frequently changing adjusters
- “Losing” submitted paperwork
3. Lowball Settlement Offers
A common tactic is offering far less than the claim’s true value. Example:
- A car accident victim with 50,000inmedicalbills∗∗getsa∗∗50,000inmedicalbills∗∗getsa∗∗10,000 offer.
4. Misrepresenting Policy Terms
Some adjusters twist policy language to avoid payouts. Example:
- “Your roof damage isn’t covered because it’s ‘wear and tear’” (when a storm caused it).
5. Failing to Defend Insured Parties
In liability cases (e.g., car accidents), insurers must provide legal defense. Bad faith occurs if they:
- Refuse to hire a lawyer
- Force an unfair settlement
How to Prove Bad Faith Insurance
To win a bad faith case, you must show:
- The claim was valid (you followed policy requirements).
- The insurer acted unreasonably (no justifiable reason for denial/delay).
- You suffered damages (financial harm due to their actions).
Evidence Needed
- Policy documents (proving coverage)
- Claim denial letters (showing insurer’s reasoning)
- Medical reports/repair estimates (proving losses)
- Communications with adjusters (emails, call logs)
- Expert testimony (doctors, contractors, etc.)
Legal Remedies for Bad Faith Insurance
If you win a bad faith case, you may recover:
✔ Full claim benefits (original owed amount)
✔ Compensatory damages (extra financial losses)
✔ Punitive damages (fines punishing the insurer)
✔ Attorney fees & court costs
Real Case Example
In Jones v. ABC Insurance Co., a court awarded:
- $250,000 for a wrongfully denied fire claim
- $1 million in punitive damages (for intentional bad faith)
How an Insurance Lawyer Helps Fight Bad Faith
1. Investigating the Claim
Lawyers review:
- Policy terms
- Claim history
- Adjuster notes (sometimes uncovering hidden approvals)
2. Negotiating with Insurers
Attorneys use legal pressure to force fair settlements.
3. Filing a Bad Faith Lawsuit
If negotiations fail, lawyers sue for:
- Breach of contract
- Violation of state insurance laws
4. Maximizing Compensation
They calculate all recoverable damages, including:
- Emotional distress
- Lost wages
- Future medical costs
State Laws on Bad Faith Insurance
Laws vary by state:
| State | Bad Faith Penalties |
|---|---|
| California | Punitive damages + emotional distress claims |
| Florida | Insurer pays 2-3x denied amount if found in bad faith |
| Texas | Policyholders can sue for “unfair settlement practices” |
Note: Some states (like New York) require proof of intentional misconduct, while others only need unreasonable conduct.
When to Hire a Bad Faith Insurance Lawyer
Consult an attorney if:
🔴 Your claim was denied without explanation
🔴 The insurer ignores your calls/emails
🔴 You’re offered a fraction of your claim’s value
🔴 The adjuster changes their story frequently
FAQs About Bad Faith Insurance Claims
Q: How long do I have to file a bad faith lawsuit?
Most states give 1-3 years (varies by location).
Q: Can I sue for emotional distress caused by bad faith?
Yes, in some states (e.g., California, Arizona).
Q: Will my insurance rates go up if I sue for bad faith?
No—insurers cannot retaliate for legal claims.
Conclusion: Don’t Let Insurers Bully You
Bad faith insurance practices are illegal—and costly. If you suspect your insurer is acting unfairly:
- Document everything (calls, emails, letters).
- Consult an insurance lawyer (most offer free case reviews).
- Fight for what you’re owed.
