Introduction
Insurance companies have legal obligations to handle claims fairly and in good faith. When insurers unreasonably deny claims, delay payment, or undervalue damages, they may be acting in bad faith. If your insurance company is treating you unfairly, understanding bad faith laws and your legal options is essential for protecting your rights.
This comprehensive guide covers what constitutes insurance bad faith, common bad faith practices, your legal remedies, and how to pursue bad faith claims against insurers.
You have legal recourse when insurance companies act illegally. We'll help you understand bad faith and your options.
What Is Insurance Bad Faith
Bad faith occurs when an insurance company fails to fulfill its legal obligations to policyholders or claimants. Insurers must investigate claims fairly, communicate honestly, and pay valid claims promptly.
Bad faith applies primarily to claims against your own insurance company, where the policy creates contractual obligations. Third-party claims against another driver's insurer have different rules.
The duty of good faith requires insurers to give equal consideration to their own interests and the interests of policyholders. Prioritizing profits over fair claims handling can constitute bad faith.
Bad faith is both a breach of contract and, in many states, a separate legal wrong (tort) that can result in additional damages beyond your policy claim.
Common Bad Faith Practices
Denying valid claims without proper investigation is a classic bad faith practice. Insurers must thoroughly investigate before denying coverage.
Unreasonable delays in processing claims, requesting information, or making decisions can constitute bad faith. Insurers have obligations to handle claims promptly.
Offering settlements far below claim value to pressure acceptance is bad faith. Insurers cannot lowball claims knowing the offer is inadequate.
Misrepresenting policy terms to deny coverage, refusing to explain denials, and failing to communicate about claim status are all potential bad faith violations.
Requiring excessive documentation, asking for information already provided, and creating unnecessary bureaucratic obstacles may indicate bad faith.
First-Party vs. Third-Party Claims
First-party bad faith involves claims against your own insurance company under your policy. This includes UM/UIM claims, collision claims, and PIP claims.
Your policy creates a contractual relationship with your insurer that includes implied duties of good faith. Breach of these duties supports bad faith claims.
Third-party claims are against another driver's insurance. Different rules apply because you don't have a contractual relationship with that insurer.
Some states allow bad faith claims against third-party insurers under certain circumstances, while others limit bad faith actions to first-party relationships.
Damages for Bad Faith
Bad faith claims can recover damages beyond your original policy claim. These additional damages punish the insurer and compensate for harm caused by their misconduct.
Consequential damages include financial harm caused by the insurer's bad faith, such as credit damage, lost opportunities, and costs incurred while fighting the denial.
Emotional distress damages compensate for anxiety, stress, and mental anguish caused by the insurer's conduct.
Punitive damages may be available for particularly egregious bad faith conduct, punishing the insurer and deterring similar behavior.
Attorney fees and costs may be recoverable in bad faith cases, making it feasible to pursue claims even when they're complex.
Proving Bad Faith
Document all communications with your insurer. Keep copies of letters, note phone calls, and save emails. This documentation proves the insurer's conduct.
Evidence showing the insurer ignored or misrepresented evidence supports bad faith claims. If they denied claims despite clear documentation supporting coverage, this demonstrates unreasonable conduct.
Internal insurer documents obtained through discovery may reveal policies prioritizing claim denial or settlement minimization over fair handling.
Expert testimony about insurance industry standards can establish that the insurer's conduct fell below acceptable practices.
Frequently Asked Questions
Conclusion and Next Steps
Insurance companies have legal obligations to handle claims fairly. When they fail these obligations, you have legal recourse through bad faith claims.
The most important things to remember are: document all insurer communications and conduct, understand the difference between legitimate claim disputes and bad faith, know that bad faith allows recovery beyond your original claim, and consult an attorney if you suspect bad faith.
If you believe your insurance company is acting in bad faith, contact a qualified attorney for a free consultation. An experienced bad faith attorney can evaluate your insurer's conduct and pursue additional damages if they've violated their obligations.