What Is a Bad Faith Insurance Claim?

Short answer: A bad faith insurance claim is a separate legal claim against an insurer for how it handled a claim, on top of whatever the underlying policy would have paid. Most states require insurers to deal with policyholders in good faith, and conduct commonly cited includes unreasonable delay, an unsupported lowball offer, and ignoring evidence in the file. A legitimate, debatable coverage dispute is not automatically bad faith. What counts, what must be proven, and what can be recovered all vary by state. Consult a licensed attorney in your state.

Several explainers on this site mention, almost in passing, that an insurer’s conduct can cross a line and become something a policyholder can pursue in its own right. Our explainer on uninsured motorist claims notes that most states impose “duties of good faith and fair dealing” on how an insurer handles a claim. Our explainer on dealing with an insurance adjuster and our explainer on truck accident claims both describe aggressive claims handling and then add, almost as a caveat, that “none of this is bad faith.” Readers are routinely told the concept exists and then pointed elsewhere.

This explainer is that elsewhere. It covers what a bad faith insurance claim actually is, the duty an insurer generally owes, the difference between a first-party claim against your own insurer and a third-party claim tied to someone else’s liability policy, the patterns of conduct most commonly discussed in this area, what a bad faith theory can add to an underlying recovery if it is established, and what it is not. Nothing here asserts that any specific conduct is bad faith in any specific state. That determination depends on facts and on law that varies from one state to the next, and it belongs to a licensed attorney reviewing your actual file.

What a bad faith insurance claim actually is

An insurance policy is a contract, and like most contracts it carries an implied obligation layered on top of its written terms. In most states, that obligation is described as a duty of good faith and fair dealing, and it means an insurer is expected to investigate fairly, evaluate a claim honestly against the facts and the policy language, and communicate with the policyholder rather than simply sitting on a file. A bad faith insurance claim is the legal vehicle for holding an insurer accountable when its conduct falls far enough below that duty.

The important distinction is that a bad faith claim is not the same thing as the underlying claim. If you were in a car accident, the underlying claim is about the accident: who was at fault, what the injuries are worth, what the policy covers. A bad faith claim is about something that happens on top of that, concerning how the insurer handled the claim itself. It is possible to have a perfectly valid underlying claim handled badly, and it is possible to have a weak underlying claim handled entirely properly. The two questions are related but separate, and they are often evaluated separately even when they arise from the same event.

Because this is a legal theory rather than a single defined act, it has no universal checklist. What follows describes the architecture most states share in broad strokes: the duty, the kinds of conduct commonly discussed as potentially breaching it, and what a claim can add if the theory is ultimately established. None of it should be read as a statement that any particular conduct meets any particular state’s standard.

The duty every insurer owes you

The duty of good faith and fair dealing is usually described as requiring an insurer to give at least as much consideration to the policyholder’s interests as to its own when handling a claim. In practice, that tends to translate into a handful of recurring expectations: investigate the claim fairly rather than looking only for reasons to deny it, evaluate the evidence honestly including evidence that supports the claim, communicate the basis for decisions rather than leaving a policyholder guessing, and avoid using the insurer’s financial leverage to pressure an outcome that is not supported by the facts.

Where this duty comes from differs by state. In some it is rooted in the common law understanding of insurance contracts. In others it is reinforced, or in some cases primarily governed, by a statute addressing unfair claims settlement practices. Several states allow both a common law claim and a statutory claim to exist side by side, with different elements and different available remedies for each. This explainer does not attempt to state which framework applies where, because getting that wrong is worse than saying nothing, and a licensed attorney in your state can tell you which one governs your situation.

What stays constant across states is the basic shape: a duty exists, it is higher than ordinary commercial fair dealing because of the imbalance of power and information between an insurer and a policyholder, and conduct that falls far enough short of it can become its own claim.

First-party vs third-party bad faith: two different claims

These two labels get used constantly in this area and get confused just as constantly, so it is worth separating them clearly before going further.

First-party bad faith involves your own insurer mishandling your own claim under your own policy. This covers situations like a health insurer wrongly denying coverage for treatment, a homeowners insurer dragging out a property damage claim, a disability insurer cutting off benefits without adequate basis, or an auto insurer mishandling your own medical payments, personal injury protection, or uninsured and underinsured motorist claim. The relationship is directly contractual: you paid premiums, the insurer owes you the duty, and you are the one harmed by a breach of it.

Third-party bad faith typically arises in a different configuration. A liability insurer defends its own policyholder against a claim brought by someone that policyholder injured. If the insurer handles that defense unreasonably, for example by failing to settle within the policy limit when a reasonable insurer in the same position would have, and a judgment later exceeds the limit, the insurer can potentially be exposed to responsibility for the amount above the limit that its own policyholder would otherwise have to pay personally. The policyholder is the one with the bad faith claim in that scenario, though the facts usually originate from how the insurer handled the injured party’s demand.

Common patterns discussed in this area

A handful of fact patterns recur often enough in discussions of insurance bad faith that they are worth describing individually, with the same caveat repeated for each one: none of these is automatically bad faith by itself, and whether a specific instance crosses the line is a fact-specific and state-specific question.

Unreasonable delay is probably the most commonly cited pattern, covered in its own section below. An unsupported lowball offer, meaning a settlement figure with no apparent basis in the insurer’s own evidence, is another, also covered separately. A one-sided or incomplete investigation, where favorable evidence is not pursued or is pursued and then ignored, is a third. Misrepresenting the policy’s actual terms to a policyholder, whether about what is covered, what a deductible is, or what a procedural requirement actually says, is a fourth. Failing to communicate at all, leaving a policyholder unable to find out the status of their own claim, is a fifth, and it often compounds whichever other pattern is present because it prevents the policyholder from correcting a misunderstanding before it hardens into a decision.

Unreasonable delay and why timing gets scrutinized

Delay draws attention in this area because time itself has a cost, and because a delay with no explanation is one of the easier patterns to document from the outside.

Some states have statutes or regulations that set benchmarks for acknowledging a new claim, beginning an investigation, or communicating a coverage decision. Where those exist, they function as one input into whether a delay looks reasonable, not as an automatic trigger the moment a calendar date passes. A straightforward claim with clear liability and well-documented damages that sits untouched for months reads very differently from a complex claim involving a genuine coverage dispute, multiple parties, or incomplete medical records, even if the elapsed time looks similar on paper.

What tends to matter most is whether the delay was caused by something legitimate, such as waiting on records the insurer actually requested and followed up on, or whether the file shows no activity and no explanation. A claim file with a clear, documented reason for every stretch of silence looks very different, to a court evaluating it later, from one where months pass with no apparent work being done at all.

Lowball offers and when an offer is defensible instead of a tactic

An insurer making a low opening offer is not, by itself, unusual or improper. Negotiation involves opening positions on both sides, and our explainer on should you accept the first settlement offer covers why an early number is routinely below where a claim eventually resolves. The question in a bad faith analysis is narrower and more specific: was the offer tethered to anything in the insurer’s own file, or did it ignore evidence the insurer already had.

An offer that disregards the treating provider’s own records, that uses a valuation method the insurer’s own guidelines do not support, or that is repeated unchanged after new supporting evidence is submitted, reads differently from an offer that is simply lower than the policyholder hoped for. The distinction again comes down to the file: what did the insurer actually have when it made the offer, and does the offer reflect that evidence or ignore it. A claimant who believes an offer is unsupported should ask, in writing, what evidence the offer is based on, because the answer (or the absence of one) becomes part of the record either way.

Failure to investigate and ignoring the insurer’s own evidence

A fair investigation does not mean an exhaustive one, and insurers are not required to accept every claim at face value. What tends to draw scrutiny is an investigation that appears to look only for reasons to deny or minimize a claim, that fails to pursue an obvious and available line of evidence, or that obtains favorable evidence and then does not reflect it in the eventual decision.

A frequently cited example is a medical or expert opinion obtained by the insurer itself that actually supports the claim, followed by a denial or lowball offer that does not mention or account for it. Another is a claim denied for a reason the insurer’s own investigator’s notes do not support, or that contradicts something else in the same file. These patterns matter because they point to a decision made for a reason other than an honest evaluation of the evidence, which is closer to the core of what the duty of good faith is meant to prevent.

Misrepresenting the policy

Insurance policies are long, and most policyholders have never read theirs in full before a claim forces the question. A pattern sometimes discussed in this area is an insurer, or someone speaking for it, describing the policy’s terms inaccurately to a policyholder who has no independent way to check, whether that means overstating an exclusion that does not actually apply as described, understating a coverage that does apply, mischaracterizing a procedural requirement like a notice deadline, or describing a deductible or limit incorrectly.

The practical defense against this is simple and available to every policyholder: ask for the specific policy language, in writing, that supports whatever an adjuster tells you about coverage. A legitimate basis for a decision can be quoted. An inaccurate one often cannot be, or the quoted language does not actually say what was represented. This is not an accusatory question, and a well-run claims operation should be able to answer it without friction. A refusal to point to specific language, or language that turns out not to say what was claimed, belongs in the written record described later in this explainer.

Failing to communicate

A claim that goes quiet is one of the more common complaints policyholders have, and it is also one of the more documentable patterns, because silence itself is easy to timestamp. An insurer that stops responding to calls and emails, that does not explain what is being investigated or why a decision is taking as long as it is, or that gives vague reassurances with no substance behind them over repeated contacts, is behaving differently from an insurer handling a genuinely complex claim with active, documented work underway.

The reason this pattern compounds the others is that it removes the policyholder’s ability to correct course. A policyholder who is told the file is waiting on a specific record can follow up on getting that record produced. A policyholder told nothing has no way to know whether the claim is progressing normally or has simply been set aside. Our explainer on how to deal with an insurance adjuster covers how to keep communication structured and in writing from your side regardless of how the insurer behaves, which is useful both for the underlying claim and for any later question about how it was handled.

Punitive damages and how they relate to bad faith

Our explainer on punitive damages covers that topic generally: damages intended to punish and deter rather than to compensate for a loss, available only in a narrow set of cases and typically requiring a high bar of proof. Insurance bad faith is one of the areas where punitive damages sometimes come up, because conduct severe enough to look less like a mistake and more like a deliberate disregard of the policyholder’s interests is the kind of conduct punitive damages are meant to address.

The two concepts are related but distinct. A bad faith claim can succeed and result only in compensatory-style damages, with no punitive component at all, which is the more common outcome. Whether punitive damages are even available for a bad faith claim, what has to be shown to obtain them, and whether any cap applies to the amount are all questions governed by the state involved, and they are handled with real caution by courts precisely because they are meant for conduct well beyond an ordinary dispute. Nothing in this explainer states that any specific conduct would or would not meet that bar.

What is not bad faith

This section matters as much as any list of red flags, because assuming bad faith where none exists wastes effort and can damage credibility in the underlying claim.

A denial based on a genuine, debatable coverage question is not automatically bad faith, even where the policyholder strongly disagrees with the outcome. Insurance policies are contracts with language that sometimes genuinely supports more than one reading, and an insurer taking a defensible position on an unsettled question is doing something different from denying a claim it knows is covered. A thorough investigation that simply takes time is not automatically bad faith, particularly for a complex claim. An offer lower than the policyholder wanted, where the offer is actually grounded in the insurer’s evidence, is not automatically bad faith either, even if it turns out to undervalue the claim; that is closer to an ordinary negotiation dispute. And a single administrative mistake, corrected promptly once identified, is generally treated very differently from a pattern repeated across a file.

The common thread is that bad faith, where it exists, tends to be about the insurer’s process and reasoning, not simply about whether the policyholder is unhappy with the outcome. A denial can be wrong on the merits, and even reversed later, without having been made in bad faith.

What a bad faith claim can add to the underlying recovery

Where a bad faith theory is ultimately established, what it can add varies significantly by state and by the type of claim, and no figure or category stated here should be treated as a prediction.

Commonly discussed categories include the amount that should have been paid under the policy in the first place, which is often the baseline the rest of the analysis builds on. Beyond that, some states recognize damages caused specifically by the mishandling itself, such as documented financial harm from being left without funds the policy should have provided. In third-party scenarios, the amount above the policy limit that a policyholder became personally exposed to because the insurer failed to settle within the limit when it reasonably could have is a commonly discussed category. In a smaller set of cases, where the conduct is severe enough, some states allow damages intended to punish and deter the insurer’s conduct, though these are typically harder to obtain, often subject to real limits, and far from automatic.

Interest on an amount wrongly withheld is also sometimes available, calculated differently from one state to the next. None of these categories is guaranteed, none is automatic once a delay or a low offer is shown, and the companion below assumes a bad faith theory has already been established in order to show what the arithmetic looks like after that point, exactly the same way our medical malpractice explainer’s companion assumes a breach has already been proven. It tests none of the underlying question itself.

Documenting a potential bad faith pattern

Because a bad faith claim is proven largely from the insurer’s own file and from the pattern across it, documentation on the policyholder’s side matters more than people expect.

Keep a written log of every communication, including the date, who you spoke with, and what was said, especially for calls where nothing is sent in writing afterward. Request, in writing, the basis for any delay, denial or low offer, and keep the response. Save every piece of correspondence from the insurer, including form letters that might otherwise seem routine. Note what evidence you submitted and when, so a later failure to acknowledge it is documented rather than disputed from memory. Where possible, follow up significant phone conversations with a short email summarizing what was discussed, which creates a contemporaneous record even when the insurer does not provide one.

This record serves two purposes. It supports a bad faith claim if one becomes appropriate, and it often improves the handling of the underlying claim on its own, because an insurer that knows its conduct is being documented has less room to be careless.

Statutes, regulators, and the complaint process

Alongside whatever court claim might exist, most states also give policyholders an administrative route: a state insurance regulator that accepts complaints about how a carrier handled a claim. This is a separate track from a bad faith lawsuit, generally faster, and generally cannot itself award you money, but it can prompt a regulator to ask the insurer formal questions about a file, and the insurer’s response becomes part of the record either way.

Many states also have a statute addressing unfair claims settlement practices, which sets out categories of conduct a regulator can act on. Whether that same statute creates a private right for a policyholder to sue directly, separate from a common law bad faith claim, differs by state, and in some states it does not. This is exactly the kind of structural question where a general explainer is the wrong source and a licensed attorney reviewing your state’s specific framework is the right one. Filing a regulatory complaint is rarely something that forecloses other options, so policyholders with a genuine concern often do both: raise it with a regulator and raise it with an attorney, rather than treating the two as alternatives.

How this interacts with a claim you already have on this site

Readers of this site are usually here about an underlying injury claim rather than starting from the concept of bad faith in the abstract, so it is worth being explicit about where this theory tends to surface inside a typical TortWise reader’s situation.

The most common entry point is a UM or UIM claim handled by your own insurer, which our explainer on uninsured motorist claims covers in detail. Because that claim runs against your own insurer under your own contract, the duty of good faith applies to it the same as to any other first-party claim, even though the facts concern someone else’s driving. A second common entry point is a liability claim where the at-fault driver’s insurer has offered far less than the documented medical bills alone, repeatedly, with no apparent basis, which connects to the lowball pattern described above. A third is a case heading toward trial where the at-fault driver’s own insurer failed to respond to a policy-limits demand before a verdict exceeded the limit, which is the classic third-party scenario described earlier in this explainer.

None of these automatically means bad faith occurred. They are simply the situations in which the question tends to come up, and recognizing the pattern early is what allows it to be evaluated and documented while the file is still open rather than reconstructed afterward.

A worked example carried through the arithmetic

Here is one hypothetical carried from an illustrative claim value to a net figure, assuming a bad faith theory has already been established. Every number was chosen to make the arithmetic legible. None of it is drawn from any case, any dataset or any real insurer’s conduct, and none of it predicts an outcome for anyone.

Assume an illustrative documented claim value of $180,000 arising from a serious collision, and a liability policy limit of $100,000. Assume the insurer took 182 days to communicate a decision, with no documented activity on the file between day 40 and day 182, and made no offer during that period despite having the medical records needed to evaluate the claim. Assume that pattern is later found, in this invented scenario only, to support a bad faith theory tied to the insurer’s failure to engage with a settlement demand within the policy limit.

The amount beyond the policy limit is $80,000, which is the portion of the documented claim value the policy alone would not have reached. In this invented scenario, assume that full $80,000 becomes part of the bad faith recovery. An illustrative one-third contingency fee on that amount is roughly $26,667, leaving a net illustrative figure of $53,333 from the bad faith claim alone, on top of whatever the underlying $100,000 policy limit claim separately resolves for.

Change any input, including whether the theory succeeds at all, and the whole shape changes. The companion below lets you run this arithmetic on your own illustrative figures and makes the same assumption explicit: it prices what follows if a bad faith theory is established, and it tests nothing about whether any particular conduct actually qualifies.

Common mistakes people make around bad faith

Assuming every denial or every low offer is bad faith, which wastes energy and can undercut credibility if raised too aggressively or too early. Waiting until the underlying claim is completely resolved before raising a concern, when the contemporaneous record built while the claim is still open is usually the strongest evidence available. Failing to keep written records of calls and conversations, leaving only the insurer’s version of events in the file. Assuming a time-based benchmark from one state or from something read online applies automatically in your state, when these figures and standards differ considerably. And treating a bad faith claim as something a policyholder can realistically build and prove alone, when the proof typically requires access to the insurer’s own file through a process that generally requires an attorney to obtain.

When to bring in a licensed attorney

TortWise is an informational publisher rather than a law firm, and nobody here can tell you whether your insurer’s conduct meets any state’s standard for bad faith. What this explainer can do is describe when the question is worth raising with one.

A delay with no documented explanation that stretches well beyond what the insurer itself describes as its normal process is one signal. An offer that appears to ignore evidence the insurer plainly had is another. A denial that contradicts the insurer’s own file, or that was never adequately explained despite repeated requests, is a third. A liability claim heading toward a verdict that may exceed the at-fault driver’s policy limit, where a policy-limits demand was made and not meaningfully engaged with, is a fourth and often the most consequential, because the exposure in that scenario can fall on the policyholder personally. In any of these situations, a conversation with a licensed attorney costs little relative to what is potentially at stake and can help determine, from your actual file, whether a bad faith theory is worth pursuing at all.

The bottom line

A bad faith insurance claim is a real legal theory, grounded in a duty most states impose on insurers, and it is also one of the more frequently misunderstood corners of this entire subject. It is not a label for any denial you disagree with or any offer lower than you hoped for. It is a claim about an insurer’s process: whether the investigation was fair, whether the decision reflected the evidence actually in the file, and whether the handling fell far enough short of ordinary fair dealing to become its own claim.

What you can act on this week is the record. Log every communication, request reasons in writing, and keep everything the insurer sends you, whether or not you currently suspect bad faith, because that record is useful either way and nearly impossible to reconstruct later.

What you cannot responsibly do alone is the legal conclusion. Which duty applies, what has to be proven, what categories of recovery exist, and whether any specific pattern in your file meets your state’s standard are all questions for a licensed attorney reviewing your actual claim file, not for a general explainer or a calculator.

This explainer describes the general architecture of insurance bad faith claims and stops there. TortWise publishes information; it is not a law firm, nobody here represents you, and reading this creates no attorney-client relationship of any kind. Every dollar figure and day count above was invented to make arithmetic visible, and none of it reflects, resembles or predicts the result of any real claim or the conduct of any real insurer. Whether a duty of good faith is recognized at common law, by statute, or both in a given state, what conduct breaches it, what categories of damages are available, and whether any time period is treated as a benchmark are all set separately by each state and are revised over time. Speak with an attorney licensed where your policy and your claim are located before concluding that any insurer acted in bad faith.

Edited by Hamza Hai, MBA · Editor

Hamza Hai is the editor of TortWise. She holds an MBA and reviews the site's articles against our editorial standards, checking that every figure is labelled for what it is, that nothing is presented as verified fact without a source the reader can check, and that the writing stays useful to a non-specialist.

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