Legal Injury GuideLast reviewed & updated: 2026
Insurance Bad Faith — When an Insurer
Wrongfully Denies Your Claim
You pay premiums expecting your insurer to pay valid claims fairly and promptly. When it instead denies coverage without a reasonable basis, drags out the process, or lowballs you as a strategy, it may be acting in bad faith. Bad-faith law gives policyholders a way to hold insurers accountable — sometimes for damages well beyond the original claim. This guide explains what bad faith looks like, how first-party and third-party claims differ, and how to document unreasonable conduct.
Good faith
Insurer duty
First / third-party
Two claim types
Punitive
Possible extra damages
Documentation
Your best tool
Common Bad-Faith Tactics
Not every claim denial is bad faith — insurers are entitled to dispute genuinely questionable claims. But certain patterns of conduct cross the line into unreasonable handling. Recognizing them helps you spot when your insurer may be acting improperly.
Unreasonable denial
Rejecting a clearly valid claim without a reasonable basis or a proper investigation.
Unjustified delay
Dragging out claim handling, ignoring communications, or repeatedly requesting the same documents to stall payment.
Lowball offers as a pattern
Systematically offering far below a claim’s value hoping the policyholder gives up.
Failure to investigate
Denying or minimizing a claim without gathering and fairly evaluating the available evidence.
Misrepresenting policy terms
Twisting coverage language or hiding benefits to avoid paying what the policy owes.
First-Party vs Third-Party Bad Faith
First-party bad faith involves your own insurer mishandling a claim under your policy — for example, a property claim or an uninsured motorist claim that your carrier unreasonably denies. Third-party bad faith usually arises in liability contexts, such as when an insurer unreasonably refuses a reasonable settlement within policy limits and exposes its insured to a larger judgment. The duties and remedies differ, but both stem from the same core principle: an insurer must treat claims fairly and honestly.
What Supports or Undercuts a Bad-Faith Claim
The strength of a bad-faith claim turns on whether the insurer’s conduct was truly unreasonable and how well you can prove it.
▲Supports the Claim
+Written record of communications
Emails and letters documenting delays, denials, and shifting reasons build a strong bad-faith record.
+Clear coverage and valid claim
When the claim is plainly covered, an insurer’s refusal to pay looks unreasonable.
+Pattern of stalling
Repeated, unexplained delays and ignored deadlines support an inference of bad faith.
▼Undercuts the Claim
–Genuine coverage dispute
If reasonable people could disagree about coverage, a denial is less likely to be bad faith.
–Incomplete documentation from you
Failing to provide requested proof can justify an insurer’s delay or denial.
–Missing notice or deadlines
Late reporting or missed policy deadlines can undercut both the claim and a bad-faith argument.
Protecting Yourself Against Bad Faith
Communicate in writing, keep copies of everything you submit, and note the date and substance of every call. Understanding how legitimate insurance claim handling works helps you recognize when conduct becomes unreasonable, and firm but documented negotiation often resolves disputes before they escalate. If an insurer continues to stonewall a plainly valid claim, that conduct can add value to your case and may justify pursuing a lawsuit.
Frequently Asked Questions
What is insurance bad faith?
Insurance bad faith occurs when an insurer breaches its duty to deal fairly and honestly with a policyholder — for example, by unreasonably denying a valid claim, delaying payment without justification, failing to investigate, or offering far less than a claim is worth without a reasonable basis. Insurers owe a duty of good faith and fair dealing, and when they violate it, the policyholder may have a separate legal claim beyond the underlying coverage dispute.
What is the difference between first-party and third-party bad faith?
First-party bad faith arises when your own insurer mishandles a claim you made under your own policy — such as a UM/UIM, property, or health claim. Third-party bad faith typically arises in liability situations, for example when an insurer unreasonably fails to settle a claim against its insured within policy limits, exposing the insured to a larger judgment. The two categories involve different duties and remedies, and which applies depends on the coverage and parties involved.
What extra damages are available in a bad-faith claim?
Beyond the benefits owed under the policy, a successful bad-faith claim may allow recovery of additional damages caused by the insurer’s conduct, such as financial harm from the delay or denial and, in some cases, emotional distress. Where the insurer’s conduct is especially egregious, punitive damages may be available to punish and deter the behavior. The specific remedies vary by state, and not every disputed claim rises to the level of bad faith.
How do I prove an insurer acted in bad faith?
The core question is usually whether the insurer acted unreasonably and without a proper basis. Documentation is critical: keep every letter and email, note dates of calls and what was said, save proof you submitted, and track deadlines the insurer ignored. A record showing shifting or pretextual reasons, unexplained delays, or a refusal to investigate a clearly valid claim is powerful evidence. A genuine, reasonable coverage dispute, by contrast, is generally not bad faith.
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For informational purposes only. Not legal advice. Consult a licensed attorney.