What is bad faith insurance and can I sue my own insurer for it?

Insurance bad faith occurs when an insurer unreasonably fails to fulfill its contractual obligations to its policyholder — not just making a coverage decision you disagree with, but acting in an objectively unreasonable manner. Examples include: unreasonably delaying or denying a valid claim without a proper investigation; refusing to settle a claim within policy limits when there is clear liability; failing to communicate with the policyholder; misrepresenting policy terms or coverage; or conducting a biased, inadequate investigation. Most states allow policyholders to sue their own insurer for bad faith, and the remedies go beyond the policy limits — you may recover the full amount of your damages, attorney fees, consequential damages resulting from the bad faith, and in egregious cases, punitive damages. Bad faith claims primarily arise with your own insurer (UM/UIM claims, first-party property claims, PIP claims), not with the adverse party's insurer toward whom you have only a third-party relationship.