Insurance bad faith occurs when an insurer breaches its duty of good faith and fair dealing to a policyholder, for example, by unreasonably denying a valid claim, delaying payment without cause, or making a lowball offer it can't justify. When that happens, the insurer can owe you damages beyond the original policy limit, including the value of the claim itself, and in some states, additional compensatory or punitive damages. Big Auto Accident Attorneys has seen insurers use these exact tactics against injured clients, and knowing the difference between a tough negotiation and actual bad faith is the first step toward holding an insurer accountable.
Every insurance policy carries an implied duty of good faith and fair dealing, whether or not the policy itself says so. Below, we break down what crosses the line into bad faith, what you can recover, and how to build a case that holds up.
What Counts as Bad Faith by an Insurance Company?
Bad faith by an insurance company generally means the insurer acted unreasonably in handling a valid claim rather than simply disagreeing about its value. Common examples include:
- Denying a claim without conducting a genuine investigation
- Offering a settlement far below the claim's documented value with no supporting justification
- Unreasonably delaying a decision or payment on a claim
- Misrepresenting policy terms to avoid paying benefits
- Failing to explain, in writing, the basis for a denial or low offer
Not every denial or disagreement is bad faith. An insurer is allowed to dispute coverage, request documentation, or make an offer you think is too low, as long as it has a reasonable basis for doing so.
What Damages Can You Recover in a Bad Faith Claim?
A successful bad faith claim can recover more than the amount originally owed under the policy. Depending on the state and the legal theory involved, damages can include the underlying policy benefits, consequential damages caused by the delay or denial, attorney's fees, and, in states that recognize bad faith as a tort, punitive damages meant to punish the insurer's conduct. The National Association of Insurance Commissioners has developed a model Unfair Claims Settlement Practices Act that most states have adopted in some form, giving state insurance regulators independent authority to investigate and penalize insurers for the same conduct, separate from any civil lawsuit.
How Do You Prove an Insurer Acted in Bad Faith?
Proving bad faith requires showing that your claim was valid under the policy and that the insurer's handling of it was unreasonable, not merely disappointing. Courts typically look at the insurer's internal claims file, the timeline of communications, whether an actual investigation occurred, and whether the insurer's stated reasons for its decision match the evidence it had available. In the landmark case Boston Old Colony Insurance Co. v. Gutierrez, the Florida Supreme Court held that an insurer handling a claim owes the same degree of care a reasonably prudent person would exercise managing their own affairs — a standard that has shaped bad faith law well beyond Florida's borders.
Is Bad Faith Handled Differently by State?
Yes, bad faith law varies meaningfully by state, since most of it developed through state court decisions rather than a single federal standard. Some states recognize bad faith purely as a breach of contract, limiting recoverable damages to the policy amount plus interest. Others recognize it as an independent tort, opening the door to consequential and punitive damages beyond the policy limit. Nearly every state has also adopted some version of the NAIC's model Unfair Claims Settlement Practices Act, which gives the state insurance commissioner separate enforcement authority regardless of what a civil court decides.
Steps to Take If You Suspect Your Insurer Is Acting in Bad Faith
If you think an insurer is handling your claim in bad faith, a few early steps protect your position:
- Keep a written record of every call, letter, and offer from the insurer
- Request a written explanation any time a claim is denied or reduced
- Compare the insurer's stated reasoning against your own documented damages
- Avoid accepting a quick settlement before understanding the full value of your claim
- Consult a personal injury lawyer before your state's filing deadline passes
Think Your Insurer Is Acting in Bad Faith? Big Auto Can Help
Insurance companies count on policyholders not knowing the difference between a hard negotiation and bad faith. Big Auto Accident Attorneys reviews how insurers have handled our clients' claims as a standard part of our process, and we don't charge you anything unless we win. Call 1 (844) BIG-AUTO for a free case evaluation.
The information on this page is provided for general educational purposes only and does not constitute legal advice. Every case is different. Past results do not guarantee future outcomes.
Sources
- National Association of Insurance Commissioners, Unfair Claims Settlement Practices Act (Model Law 900)
- Farella Braun + Martel, An Overview of the Distinct Categories of Bad Faith and the Implications of Recovery in Different States