The Duty of Good Faith
Every insurance policy contains an implied covenant of good faith and fair dealing. This legal doctrine requires insurers to handle claims honestly, investigate thoroughly, communicate transparently, and pay legitimate claims promptly. When an insurer violates this duty, the law provides remedies beyond the original policy benefits, including compensatory damages, consequential damages, and in egregious cases, punitive damages.
Bad faith can occur in first-party claims, where you are making a claim against your own insurer, or in third-party claims, where the insurer handles a claim against their policyholder on your behalf. The legal standards and available remedies differ between these scenarios, but the fundamental principle remains the same. Insurers must treat claimants fairly.
Common Bad Faith Tactics
Bad faith encompasses a wide range of improper conduct. The following behaviors are frequently cited in bad faith litigation and may support a claim if they caused you financial harm or extended your recovery unnecessarily.
Unreasonable Claim Denial
An insurer denies a claim without a reasonable basis, ignores favorable evidence, or interprets policy language in an unreasonable manner to avoid coverage. A denial is not necessarily bad faith if the insurer has a legitimate coverage dispute, but denials that are clearly unsupported by the facts or law may cross the line.
Inadequate Investigation
Insurers must conduct a prompt and thorough investigation before denying or underpaying a claim. Failing to interview witnesses, review medical records, inspect property damage, or consider relevant documentation constitutes a breach of the duty to investigate. A shoddy investigation designed to reach a predetermined conclusion supports a bad faith claim.
Delay Without Cause
Intentional delay tactics intended to pressure claimants into accepting low settlements are classic bad faith. Examples include repeatedly requesting documents already provided, transferring the claim between adjusters to restart the timeline, or simply failing to respond to inquiries for weeks or months without explanation.
Misrepresenting Policy Terms
When adjusters make false or misleading statements about what your policy covers, what the law requires, or what damages you are entitled to recover, they may be acting in bad faith. For example, telling a claimant that pain and suffering is not recoverable when state law clearly allows it is a misrepresentation that can support a bad faith claim.
Proving Bad Faith
A successful bad faith claim requires evidence that the insurer's conduct was unreasonable or intentional under the circumstances. This is a fact-intensive inquiry that varies by state. Some states apply an objective standard, asking whether a reasonable insurer would have denied the claim under the same facts. Other states apply a subjective standard, requiring proof that the insurer knew or recklessly disregarded that its conduct was improper.
Documentation is critical. Preserve every letter, email, and recorded call with the insurance company. Request the claim file through your state's insurance regulations, as many states require insurers to provide copies upon request. An experienced bad faith attorney can subpoena internal communications and claim handling guidelines that reveal whether the insurer followed its own procedures or deliberately violated them.
Damages Available in Bad Faith Cases
Bad faith damages extend far beyond the original claim amount. Depending on your state's laws, you may recover compensatory damages for the financial losses caused by the insurer's misconduct, including additional medical expenses, lost wages, and emotional distress. Consequential damages cover losses that flowed indirectly from the bad faith conduct, such as damage to your credit from unpaid bills sent to collections.
Punitive damages punish egregious misconduct and deter similar behavior by other insurers. These damages are awarded only in extreme cases involving intentional wrongdoing or reckless disregard for the claimant's rights. While punitive damages are rare, they can reach substantial amounts in high-profile cases and create significant leverage during settlement negotiations.
When to Consult a Bad Faith Attorney
If you believe your insurance company has treated you unfairly and the misconduct has caused meaningful harm, consult an attorney who specializes in insurance bad faith litigation. These cases are complex, and insurers defend them aggressively with teams of experienced lawyers. Attempting to handle a bad faith claim without specialized representation significantly reduces your chances of success.
