Insurance Bad Faith: When Companies Don't Play Fair

When you file an insurance claim, you expect fair treatment. After all, you've paid premiums for years. But what happens when the insurance company refuses to pay a valid claim, deliberately delays, or offers far less than your claim is worth? This is called "bad faith," and it can entitle you to additional damages beyond your original claim.

What is Insurance Bad Faith?

Insurance bad faith occurs when an insurance company violates its duty of good faith and fair dealing. Every insurance policy includes an implied covenant requiring the insurer to:

• Promptly investigate claims
• Evaluate claims fairly and objectively
• Pay valid claims in a timely manner
• Communicate honestly with policyholders
• Not prioritize profits over legitimate claims

Common Bad Faith Tactics

Wrongful Claim Denial

Denying a legitimate claim without proper investigation or valid reason:

• Claiming the policy doesn't cover your loss when it does
• Misrepresenting policy language or exclusions
• Denying without investigating the facts
• Blaming pre-existing conditions without evidence

Unreasonable Delays

Dragging out the claims process hoping you'll give up or accept less:

• Repeatedly requesting the same documents
• Failing to respond to communications
• Transferring your claim between adjusters
• Setting unrealistic deadlines for you but ignoring their own

Lowball Settlement Offers

Offering far less than a claim is worth:

• Ignoring documented damages
• Using biased doctors or experts
• Misrepresenting what similar claims typically pay
• Pressuring you to accept before you understand your rights

Failure to Investigate

Not gathering the facts needed to evaluate your claim:

• Ignoring evidence you provide
• Not interviewing witnesses
• Relying on incomplete information to deny the claim
• Making decisions before investigation is complete

First-Party vs. Third-Party Bad Faith

First-Party Bad Faith

This is when YOUR insurance company mistreats you—their own policyholder:

• Health insurer denying covered treatment
• Auto insurer not paying for your car repairs
• Homeowner insurer disputing storm damage
• Disability insurer refusing legitimate claims

Third-Party Bad Faith

This is when the OTHER party's insurer acts in bad faith against you:

• At-fault driver's insurer offers unreasonably low settlement
• Business's insurer delays paying your injury claim
• Property owner's insurer denies clear liability

Note: Third-party bad faith is harder to prove because you're not the insurer's customer. However, some states allow claims when conduct is particularly egregious.

Damages Available in Bad Faith Cases

If you prove bad faith, you may recover:

Compensatory Damages

• The original claim amount owed
• Interest on delayed payments
• Consequential damages (credit damage, lost opportunities)
• Emotional distress caused by the insurer's conduct
• Attorney fees and legal costs

Punitive Damages

In cases of particularly outrageous conduct, courts may award punitive damages to punish the insurer and deter future misconduct. These can be several times the compensatory damages.

How to Build a Bad Faith Case

Document Everything

• Save all correspondence (letters, emails, texts)
• Record phone calls (where legally permitted)
• Note dates, times, and names of everyone you speak with
• Keep copies of everything you submit

Follow the Process

• Meet all deadlines the insurer sets
• Provide requested documents promptly
• Put complaints in writing
• Send documents via certified mail or email with read receipts

Escalate Appropriately

1. File a complaint with the insurance company's management
2. Contact your state's Department of Insurance
3. Consult with a bad faith insurance attorney
4. File a lawsuit if necessary

State Variations in Bad Faith Law

Bad faith laws vary significantly by state:

• Some states (like California and Montana) have strong consumer protections with statutory bad faith provisions
• Other states limit bad faith claims to first-party situations only
• Damages available range from simple contract damages to substantial punitive awards
• Burden of proof differs—some require "reckless disregard," others just unreasonable conduct

When to Hire a Bad Faith Attorney

Consider consulting an attorney if:

• Your claim was denied without adequate explanation
• The insurer isn't responding to your communications
• You're offered far less than your documented damages
• The claims process has dragged on for months
• You believe the insurer is misrepresenting your policy

Bad faith attorneys typically work on contingency, meaning you pay nothing unless you win.

Protecting Yourself Going Forward

• Read your policies and understand coverage limits
• Document your valuables (photos, receipts)
• Report claims promptly
• Keep detailed records of all interactions
• Know your state's insurance regulations

Conclusion

Insurance bad faith transforms insurers from claim-payers into defendants. If an insurance company is treating you unfairly, you have options. Document everything, understand your policy, and don't be afraid to fight back. A bad faith claim may not only get you the original compensation you deserved but also hold the insurer accountable for their misconduct.