What is Bad Faith in Insurance?

When you pay for insurance, you expect the company to keep its end of the bargain. You pay your premiums on time, follow the rules, and when something goes wrong, you file a claim. The insurance company is supposed to investigate fairly and pay what you're owed. But sometimes, insurers don't hold up their end of the deal. They deny legitimate claims, drag their feet for months, or offer settlements that don't come close to covering your losses. This isn't just poor customer service. It may be bad faith, and it can be unlawful.

Bad faith happens when an insurance company unreasonably denies, delays, or underpays a claim that should be covered under your policy. These situations are different from ordinary disagreements about what a policy covers. Bad faith involves something more troubling. It's about an insurer failing to act with basic fairness and honesty toward someone who trusted them for protection.

How Insurance Companies Are Supposed to Act

Every insurance contract in New York includes something called an implied covenant of good faith and fair dealing. This isn't language you'll find printed in your policy. It's a legal principle that courts recognize as part of every contract, including insurance policies. The principle is straightforward. Both parties to a contract have a duty to deal with each other honestly and fairly. For insurance companies, this means they can't use their position of power to take advantage of policyholders who are already dealing with difficult situations.

When you file a claim, your insurance company has certain responsibilities. They need to investigate your claim promptly and thoroughly. They need to communicate with you in a reasonable timeframe. They need to evaluate your claim fairly based on the evidence and the terms of your policy. And if your claim is covered, they need to pay what you're owed without unreasonable delay.

These obligations exist whether you're filing a claim for a car accident, property damage, a personal injury, or any other covered loss. The insurance company doesn't get to pick and choose when to follow these rules based on how much money is at stake or how much they feel like cooperating.

What Does Bad Faith Actually Look Like?

One of the most common is denying a claim without conducting a proper investigation. An insurance adjuster might look at your claim for a few minutes, make a snap judgment, and send you a denial letter. They don't interview witnesses, review medical records, or examine the evidence you've provided. They just say no and hope you'll go away.

Another common practice is ignoring evidence that supports your claim. You might send the insurance company medical bills, repair estimates, photographs, witness statements, and expert opinions. Instead of considering this evidence, the adjuster focuses only on information that helps the insurance company avoid paying. They cherry-pick facts to justify a denial while disregarding everything that proves you deserve coverage.

Misrepresenting policy language is another red flag. An adjuster might tell you that your policy doesn't cover something when it actually does. They might use confusing legal jargon to make you think you're not entitled to benefits. Or they might point to an exclusion that doesn't actually apply to your situation. These tactics rely on the fact that most people don't have legal training and won't know when they're being misled.

Communication failures often signal bad faith. Your insurance company might stop returning your calls and emails. They might tell you they need more information but never specify what they need. They might promise to get back to you by a certain date and then go silent for weeks or months. These delays aren't accidental. They're designed to frustrate you into giving up or accepting less than you deserve.

Lowball settlement offers are another classic bad faith tactic. The insurance company knows your claim is worth a substantial amount, but they offer you a fraction of what you're owed. They hope you're desperate enough for money that you'll take whatever they offer. Sometimes they'll make an insulting offer and claim it's the best they can do, banking on the fact that you don't know any better.

Some insurance companies change their story multiple times. First, they deny your claim for one reason. When you provide evidence that disproves that reason, they come up with a different excuse. Then another. And another. Each time you knock down one justification, they invent a new one. This pattern shows they're not acting in good faith. They're simply looking for any excuse to avoid paying.

When Disagreements Cross the Line Into Bad Faith

Not every claim denial is bad faith. Insurance policies are contracts with specific terms, and sometimes legitimate disagreements arise about what those terms mean or whether certain damages are covered. An insurance company might interpret policy language differently than you do. They might disagree about the value of your damages. These disputes can be frustrating, but they don't automatically constitute bad faith.

The difference comes down to reasonableness. If an insurance company conducts a thorough investigation, communicates with you regularly, and denies your claim based on a reasonable interpretation of the policy, that's a coverage dispute. You might still disagree with their decision, and you might even be right that they're wrong. But if they followed proper procedures and had a legitimate basis for their position, it's not bad faith.

Bad faith involves something more. It requires evidence that the insurance company acted unreasonably. Maybe they didn't investigate at all. Maybe they ignored clear evidence. Maybe they violated industry standards for claims handling. Maybe they delayed for no good reason. These actions go beyond simple disagreement. They show the insurance company wasn't trying to handle your claim fairly.

Courts recognize that policy language can be ambiguous. When an insurance company advances a reasonable interpretation of unclear policy terms, even if a court later disagrees with that interpretation, the insurer hasn't necessarily acted in bad faith. The key question is whether their position was reasonable at the time, not whether it ultimately won in court.

This distinction matters because it affects what you need to prove. In a breach of contract case, you need to show that the insurance company violated the terms of your policy. In a bad faith case, you need to show that they handled your claim unreasonably, unfairly, or dishonestly. The standard is different, and so is the potential outcome.

The Investigation Process and Why It Matters

A proper investigation is the foundation of good faith claims handling. When you file a claim, the insurance company needs to gather relevant information, review the evidence, and make a decision based on facts rather than assumptions. This process should be thorough, objective, and timely.

What does a reasonable investigation look like? It depends on the type of claim, but certain elements are standard.

The adjuster should review your policy to understand what coverage applies. They should collect and examine evidence related to your claim. For an injury claim, this might include medical records, bills, employment records, and statements from doctors. For a property claim, it might include repair estimates, photographs, and expert assessments of the damage.

The adjuster should also consider your perspective. They should give you a chance to explain what happened, provide documentation, and respond to any concerns they have. They shouldn't make decisions based on incomplete information or refuse to look at evidence you've gathered.

The investigation should happen within a reasonable timeframe. What's reasonable varies depending on the complexity of the claim, but delays should have legitimate explanations. An insurance company can't sit on your claim for months without a good reason. They can't use the investigation process as a stalling tactic to avoid making a decision.

Documentation of the investigation is crucial. Insurance companies should keep detailed records of what they did, when they did it, and why they made the decisions they made. These records become important evidence if a bad faith claim ends up in court. If an insurance company can't show that they conducted a reasonable investigation, that's a strong indicator of bad faith.

What Happens When You File a Bad Faith Claim

If you believe your insurance company acted in bad faith, you may have legal options beyond just fighting over the coverage dispute. Bad faith claims are separate from breach of contract claims. They're based on the insurer's conduct in handling your claim, not just whether they were right or wrong about coverage.

Bad faith claims can result in damages beyond what your policy covers. In a standard breach of contract case, you can recover the benefits you were owed under the policy. In a bad faith case, you might also recover damages for the harm caused by the insurance company's misconduct. This could include financial losses you suffered because of the delay in payment, emotional distress, and in rare cases, punitive damages designed to punish particularly egregious conduct.

These cases are typically decided by juries rather than judges alone. This matters because juries often have strong feelings about insurance companies that mistreat people who are already dealing with injuries, property damage, or other losses. Detailed documentation of the insurance company's conduct becomes critical evidence. Every denied claim letter, every unanswered phone call, every unreasonable delay gets examined.

To succeed in a bad faith claim, you need to prove more than just that the insurance company made a mistake or disagreed with you. You need to show that their conduct was unreasonable under the circumstances. This might involve evidence that they violated industry standards, ignored clear evidence, failed to investigate properly, or engaged in deceptive practices.

Expert testimony often plays a role in these cases. Insurance industry experts can explain what a reasonable claims handling process should look like and how the insurance company's conduct fell short. They can testify about standard practices in the industry and whether the insurer followed them.

How Courts Look at These Cases

Courts take bad faith claims seriously, but they also recognize that not every claim denial or delay constitutes bad faith. Judges look at the specific facts of each case to determine whether the insurance company's conduct crossed the line from a legitimate coverage dispute into bad faith.

One important factor is whether the insurance company had a reasonable basis for its actions. If an insurance company can show that it conducted a thorough investigation, considered all relevant evidence, and made a decision based on a reasonable interpretation of the policy, courts are less likely to find bad faith. Even if the insurance company's interpretation was wrong, if it was reasonable at the time, that may not be bad faith.

On the other hand, if the evidence shows that the insurance company ignored facts, failed to investigate, misrepresented policy terms, or delayed without justification, courts are more likely to find bad faith. The pattern of conduct matters. A single mistake might not be bad faith, but a series of unreasonable actions often is.

Courts also consider whether the insurance company's litigation conduct shows bad faith. If an insurance company continues to act unreasonably during a lawsuit, refusing to acknowledge clear evidence or making frivolous arguments to avoid paying, that can support a bad faith finding. However, the mere fact that an insurance company defends itself in court doesn't automatically constitute bad faith. They're allowed to litigate coverage disputes.

The burden of proof is on the person claiming bad faith. You need to provide specific evidence of unreasonable conduct, not just general allegations that the insurance company didn't treat you fairly. Vague complaints about poor investigation or unreasonable delay aren't enough. You need concrete examples, documentation, and evidence that shows exactly what the insurance company did wrong.

Why Bad Faith Claims Matter

Bad faith claims serve an important purpose beyond just compensating individual policyholders. They hold insurance companies accountable for their conduct and create incentives for fair claims handling. When insurance companies know they might face substantial damages for acting in bad faith, they're more likely to treat claims fairly in the first place.

Insurance is different from most other commercial relationships. When you buy insurance, you're not just purchasing a product. You're buying protection and peace of mind. You're trusting that when something goes wrong, the insurance company will be there to help. This relationship involves a significant imbalance of power. The insurance company has resources, expertise, and control over the claims process. You're often dealing with a loss, injury, or crisis while trying to navigate a complex system you don't fully understand.

Bad faith law recognizes this imbalance and requires insurance companies to exercise their power fairly. It acknowledges that insurance companies have a duty that goes beyond simply following the letter of the contract. They need to act with basic decency and fairness toward people who are counting on them.

For people dealing with serious injuries, significant property damage, or other major losses, an insurance company's bad faith conduct can be devastating. You might be unable to pay medical bills, repair your home, or replace your vehicle. You might face financial hardship because the insurance company won't pay what you're owed. The emotional toll of fighting with your own insurance company while dealing with the underlying loss can be overwhelming.

Bad faith claims provide a way to hold insurance companies accountable when they fail to live up to their obligations. They send a message that mistreating policyholders has consequences. And they provide a path to compensation for people who have been harmed by insurance company misconduct.

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Summing It Up

Bad faith insurance practices represent a serious breach of the trust that should exist between insurers and policyholders. When you pay for insurance, you're entitled to fair treatment and honest dealing. An insurance company that denies legitimate claims, delays payment without justification, or uses deceptive tactics to avoid its obligations isn't just providing poor service. It's violating fundamental legal duties.

Understanding what constitutes bad faith can help you recognize when an insurance company has crossed the line from a legitimate coverage dispute into unlawful conduct. Not every claim denial is bad faith, but patterns of unreasonable behavior, failure to investigate properly, ignoring evidence, or misrepresenting policy terms are serious red flags.

If you believe your insurance company has acted in bad faith, documentation is your most important tool. Keep detailed records of every interaction, save all correspondence, and note any delays or broken promises. This evidence becomes crucial if you need to pursue legal action.

Bad faith claims are complex, and the standards for proving them can be demanding. You need to show more than just disagreement with the insurance company's decision. You need evidence of unreasonable conduct that violated the duty of good faith and fair dealing. Given the complexity of these cases and the resources insurance companies have to defend themselves, most people dealing with potential bad faith situations benefit from legal guidance.

The insurance company has lawyers working to protect its interests. You deserve someone working just as hard to protect yours. Whether you're dealing with a denied injury claim, delayed property damage payment, or any other insurance dispute where the company's conduct seems unreasonable, understanding your rights is the first step toward holding them accountable. Reach out to the Porter Law Group today. Fill out our online form for a free consultation and know your options. You can also call 833-PORTER9 or email info@porterlawteam.com to get started.