Bad Faith — Insurance Claims Definition
General
Unreasonable insurer conduct in handling a claim, potentially creating extracontractual liability beyond the policy limits in some jurisdictions.
Bad faith varies by state. First party bad faith may involve unreasonable delay, inadequate investigation, or refusal to pay without a reasonable basis. Third party bad faith can include failure to settle within limits when liability is clear.
Statutory penalties and attorney fee shifts exist in some states.
Examples
An insurer ignores repeated proof submissions for a year without explanation; a court finds unreasonable conduct supporting bad faith damages.
Common Mistakes
Every denied claim is not bad faith; insurers may reasonably disagree on coverage. Insureds label ordinary disputes bad faith without legal basis.
