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You’ve paid your insurance premiums faithfully for years, and now that you finally need coverage, your insurance company is giving you the runaround. They’re delaying your claim indefinitely, demanding endless documentation, offering settlements that don’t come close to covering your actual damages, or flat-out denying coverage you know your policy provides. The company you trusted to protect you has become your adversary.
This experience is more common than you’d think, and it has a name: bad faith insurance practices. When insurance companies unreasonably deny valid claims or fail to properly handle them, they breach their duty to policyholders and can face serious legal consequences. Our friends at Acadia Law Group PC discuss how these practices harm policyholders who are already dealing with difficult situations. A car accident lawyer who handles bad faith claims understands that you’re not just fighting for your original claim anymore, but for additional damages caused by the insurer’s misconduct.
What Bad Faith Actually Means
Insurance companies have two primary duties to policyholders: the duty to defend and the duty to indemnify. The duty to defend means they must provide legal representation when claims are made against you. The duty to indemnify means they must pay valid claims covered by your policy.
Bad faith occurs when insurers violate these duties without reasonable justification. This goes beyond simple disagreements about claim value or coverage interpretations. Bad faith involves unreasonable conduct that puts the insurance company’s financial interests ahead of their obligations to you.
States recognize both first-party and third-party bad faith claims. First-party bad faith involves your own insurance company mistreating your claim for benefits under your policy. Third-party bad faith occurs when another driver’s insurance company handles your claim against their insured unreasonably. The standards and available damages differ between these claim types.
Common Bad Faith Tactics
Insurance companies use predictable strategies to minimize what they pay on claims. Some of these tactics cross the line from aggressive claims handling into bad faith territory.
Unreasonable Delays
Insurers who drag out investigations indefinitely, fail to respond to communications, or take months to make decisions on straightforward claims engage in bad faith. While companies need reasonable time to investigate, excessive delays without justification harm policyholders who need timely claim resolution.
You submit your claim with complete documentation, yet six months later the adjuster is still “reviewing” it without explanation. Or they keep asking for the same documents you’ve already provided multiple times. These delay tactics create financial pressure, hoping you’ll accept lowball settlements out of desperation.
Inadequate Investigation
Insurance companies must reasonably investigate claims before denying them. An insurer that refuses to interview key witnesses, ignores evidence supporting your claim, or relies exclusively on information favorable to denial commits bad faith.
We’ve seen cases where adjusters denied claims based on cursory file reviews without conducting any meaningful investigation. They make up their minds to deny coverage and then search for justification rather than objectively evaluating whether the claim should be paid.
Lowball Settlement Offers
Offering settlements far below what claims are clearly worth constitutes bad faith when the company knows or should know the claim’s true value. This differs from good faith negotiation where parties genuinely disagree about claim value.
When your medical bills total $75,000, you’ve been out of work for months, and you have permanent injuries, an offer of $10,000 isn’t aggressive negotiation. It’s bad faith if the company has no legitimate basis for such a low valuation.
Denial Without Reasonable Basis
Perhaps the clearest form of bad faith is denying claims without any reasonable basis in fact or law. The insurer rejects your claim citing policy exclusions that don’t actually apply or ignoring clear coverage language that supports payment.
Some companies deny claims hoping you won’t challenge the denial. They count on policyholders not understanding their policies well enough to recognize when denials are baseless. According to state insurance commissioner reports, improper claim denials represent a significant category of consumer complaints against insurers.
Misrepresenting Policy Terms
Telling you that your policy doesn’t cover something when it clearly does, or misquoting policy language to support denial, constitutes bad faith. Insurance policies are contracts, and insurers must deal honestly about what those contracts say.
This includes failing to disclose coverage that would benefit you. If your policy includes coverage you didn’t explicitly claim but that applies to your situation, the insurer has a duty to inform you about it rather than staying silent and avoiding payment.
Changing Explanations
When the insurance company’s reason for denial keeps changing, it suggests they’re searching for excuses rather than applying legitimate policy interpretations. First they deny based on late notice, then when you prove timely notice, they switch to claiming a policy exclusion applies, then they argue the damages aren’t covered.
These shifting justifications indicate the company decided to deny your claim and is retrofitting explanations rather than conducting fair evaluation.
What You Can Recover in Bad Faith Cases
Bad faith claims potentially provide compensation beyond your original claim value. This is why insurers fear bad faith litigation, it exposes them to damages far exceeding the policy limits they refused to pay.
Economic Damages
You can recover the full value of your original claim that should have been paid under the policy. This includes medical expenses, property damage, lost wages, and any other covered losses.
You might also recover consequential damages caused by the bad faith denial. If the insurer’s refusal to pay caused you to lose your home to foreclosure, rack up credit card debt, or suffer other financial harm, those losses can be recovered in a bad faith case.
Emotional Distress
The stress and anxiety caused by your own insurance company’s unreasonable denial of valid claims creates compensable emotional distress. Being betrayed by a company you trusted and relied on during a vulnerable time causes genuine psychological harm.
Courts recognize that insurance bad faith isn’t just about money. It’s about violated trust and the emotional toll of fighting with your own insurer while dealing with injuries, property loss, or other difficulties that led to the claim.
Punitive Damages
Many states allow punitive damages in bad faith cases when the insurer’s conduct was particularly egregious. These damages punish the insurance company for misconduct and deter future bad faith practices.
Punitive damages can be substantial, sometimes several times the underlying claim value. They’re designed to get the attention of large insurance companies and make bad faith practices economically unfavorable.
Attorney Fees and Costs
Some states make insurance companies pay your attorney fees and litigation costs when you prevail on bad faith claims. This shifts the financial burden of fighting bad faith to the party that caused the problem.
Without fee-shifting provisions, fighting bad faith would be economically impossible for many policyholders. The policy limits might be $50,000, but litigation costs could approach that amount. Fee-shifting allows policyholders to hold insurers accountable without being priced out of justice.
Building a Bad Faith Case
Proving bad faith requires documentation showing the insurer’s conduct was unreasonable. You need evidence of what the insurance company did, when they did it, and why it violated their obligations to you.
Keep detailed records of all interactions:
- Copies of every document you submitted to the insurer
- Notes from every phone conversation including date, time, who you spoke with, and what was discussed
- All written correspondence between you and the company
- Timelines showing how long the company took at each stage
- The original denial letter and any subsequent explanations
- Evidence of the actual claim value versus what the company offered
Your insurance policy itself is obviously important evidence. Reviewing it shows what coverage you purchased and whether the company’s denial contradicts clear policy language.
Expert testimony often becomes necessary in bad faith cases. Insurance claims experts can testify about industry standards for reasonable claim handling and explain how the defendant’s conduct fell below those standards.
The Duty of Good Faith and Fair Dealing
Every insurance policy includes an implied covenant of good faith and fair dealing, even if not explicitly written in the policy. This covenant requires insurers to deal fairly with policyholders and put policyholders’ interests on equal footing with their own interests in situations where their interests might conflict.
This implied duty exists because of the unequal relationship between insurers and policyholders. The insurance company drafted the policy, handles claims professionally every day, and has vastly more resources than individual policyholders. The law imposes this good faith duty to balance that power disparity.
When insurers violate this duty, they breach the insurance contract itself. This breach creates the basis for bad faith litigation seeking damages beyond the original claim.
When to Consider Bad Faith Claims
Not every claims dispute rises to bad faith. Insurance companies can deny claims in good faith when legitimate coverage questions exist. They can negotiate aggressively without crossing into bad faith territory. The key is whether their conduct had any reasonable basis.
Consider potential bad faith if your insurer:
- Takes months to investigate simple claims without explanation
- Denies your claim based on reasons that clearly contradict policy language
- Offers settlements absurdly below your documented damages
- Ignores evidence supporting your claim while focusing only on information favorable to denial
- Changes their justification for denial multiple times
- Fails to communicate or respond to your reasonable inquiries
- Misrepresents what your policy covers
These patterns suggest unreasonable conduct that might constitute bad faith rather than legitimate claims handling.
State-Specific Bad Faith Laws
Bad faith insurance law varies significantly by state. Some states make bad faith claims relatively easy to bring and allow substantial damages. Others impose higher proof standards and limit available remedies.
Understanding your state’s specific bad faith standards determines what you need to prove and what damages you might recover. Some states require showing the insurer acted intentionally or with conscious disregard. Others impose strict liability for unreasonable claim denials.
Statutes of limitations for bad faith claims also vary and might differ from the limitations period for the underlying insurance claim. Acting promptly to investigate bad faith protects your rights before time expires.
The Claims Process Timeline Matters
Insurance regulations in most states require insurers to acknowledge claims promptly, conduct reasonable investigations within specified timeframes, and make coverage decisions within set deadlines. When companies violate these regulatory timelines without justification, it supports bad faith claims.
Many states impose 30, 60, or 90-day deadlines for various stages of claim handling. Insurers who blow past these deadlines face both regulatory sanctions and potential bad faith liability.
Don’t Accept Bad Faith Treatment
You paid for insurance coverage to protect you when bad things happen. When insurance companies refuse to honor that bargain, treating you unfairly while you’re already dealing with injuries, property loss, or other hardships, you don’t have to accept it. Bad faith insurance laws exist specifically to hold companies accountable when they put profits ahead of their obligations to policyholders and to provide remedies that make fighting back against wrongful denials worthwhile even against large corporations with unlimited legal resources.