Bad Faith Insurance: What It Is and How to Fight Back

Insurance is supposed to provide peace of mind. You pay your premiums on time, year after year, with the understanding that your insurer will step in when you need help the most. 

But what happens when they don’t? 

When your insurance company delays, denies, or undervalues your legitimate claim without cause, you may be dealing with insurance bad faith.

At Morgan & Morgan, we understand how devastating it can be when the company you counted on turns its back on you. We’ve spent decades fighting for policyholders just like you, holding insurance companies accountable when they fail to uphold their end of the bargain.

If you are having to fight your insurance company for what you deserve, contact Morgan & Morgan today for a free case evaluation to learn more about your legal options.

What Is Bad Faith Insurance?

Bad faith insurance occurs when an insurance company fails to treat its policyholders fairly or does not fulfill the terms of its policy contract. While not every claim denial constitutes bad faith, there are specific behaviors and actions that clearly cross the line into legally actionable territory.

Two Types of Bad Faith

There are generally two categories of bad faith:

1. First-party bad faith – This involves disputes between the policyholder and their own insurer (e.g., a homeowner filing a property damage claim or a driver submitting a claim under their own auto policy).
2. Third-party bad faith – This involves claims where your insurance company is supposed to defend or indemnify you against claims made by another party, such as in a car accident lawsuit.
   
    

Common Examples of Bad Faith Insurance Practices

Insurance companies are required to investigate and resolve claims honestly and in a timely manner. When they don’t, their actions (or inaction) may constitute bad faith. Some examples include:

Unreasonable Claim Denials

An insurer may deny a claim without a valid reason, or without adequately explaining the denial. If the policy clearly covers the loss and there is no good-faith reason to reject it, the denial may be considered bad faith.

Failure to Investigate a Claim

Insurers are required to conduct a prompt and thorough investigation. If they ignore evidence, delay the investigation, or don't bother to collect all the relevant facts, they may be acting in bad faith.

Delaying Payment Unreasonably

A tactic often used is delaying a claim indefinitely without cause. The insurer may request unnecessary documentation or repeat processes just to drag the claim out, hoping the policyholder will give up.

Offering Significantly Less Than a Claim Is Worth

Another form of bad faith is offering a settlement that is drastically below what the claim is worth, especially when liability is clear.

Misrepresenting Policy Terms

If an insurer lies about or misstates what your policy covers, or fails to disclose important limitations, they may be committing bad faith.

Failure to Defend a Lawsuit

In third-party claims, if an insurer fails to defend you in a lawsuit that is covered under your policy, that can also constitute bad faith.

Real-World Examples

Bad faith cases happen every day. Here are some common real-world scenarios:

• A homeowner’s insurance company denies coverage for fire damage, claiming the fire was set intentionally, without any credible evidence.
• An auto insurance company drags its feet for months after a policyholder is injured in a crash, refusing to pay out even basic medical coverage.
• A health insurance provider rejects coverage for a medically necessary surgery, falsely claiming it’s an elective procedure.
• A life insurance company refuses to pay a death benefit, asserting the policy lapsed despite proof of timely payments.

In each of these cases, the policyholder might have a valid bad faith insurance claim.

Your Legal Rights as a Policyholder

As a policyholder, you are legally entitled to:

• Prompt and fair claim handling
• Accurate information about what your policy covers
• A good-faith investigation of your claim
• Reasonable compensation for covered losses

If your insurer violates these rights, you may be able to file a bad faith insurance lawsuit. These lawsuits can seek not only the original value of your claim, but also additional damages, including:

• Punitive damages, to punish especially egregious conduct
• Consequential damages, for harm caused by the delay (such as foreclosure, business losses, or emotional distress)
• Attorneys’ fees and costs
  
   

How Do You Prove Bad Faith?

To win a bad faith insurance lawsuit, you must generally prove the following:

1. The insurance policy was valid and in effect
2. You filed a legitimate claim covered under the policy
3. The insurance company unreasonably denied, delayed, or undervalued the claim
4. The insurer acted with knowledge or reckless disregard for your rights

This is a fact-intensive process. Insurance companies are experienced at creating paper trails that make it seem like they acted reasonably. That’s why it’s critical to work with an experienced legal team that can uncover the full story.

States Have Their Own Bad Faith Laws

Bad faith insurance law varies by state. Some states allow policyholders to sue under common law bad faith, while others have specific statutory protections. 

For example, California allows both common law and statutory bad faith claims, with robust protections for consumers. Florida, on the other hand, requires a Civil Remedy Notice to be filed before suing for bad faith.

Each state has its own deadlines (statutes of limitations), standards of proof, and available damages. If you think you have a claim, talk to a lawyer as soon as possible to preserve your rights.

Why Do Insurance Companies Act in Bad Faith?

It’s simple: profit.

Insurance companies are for-profit businesses. Every dollar they pay you is a dollar that comes off their bottom line. While most insurers operate in good faith most of the time, there’s always pressure to minimize payouts, especially on large or complex claims.

Some bad faith actions are due to poor internal processes or a lack of training. But in other cases, insurers may have a systemic incentive to underpay claims, or even quotas that adjusters must meet.

What Should You Do If You Suspect Bad Faith?

If you think your insurance company is acting in bad faith, here’s what to do:

1. Keep Everything in Writing

Communicate with your insurer in writing when possible. Keep detailed records of:

• Emails
• Letters
• Phone call logs
• Claim submissions
• Denial letters
  
   

2. Request a Written Explanation

Insurers must generally provide a reason for a claim denial or delay. Ask for this in writing.

3. Review Your Policy

Understand what your policy actually covers. Compare your loss with the language in the policy to see if the denial makes sense.

4. File a Complaint

You can file a complaint with your state’s Department of Insurance, which may investigate or mediate the issue.

5. Contact a Bad Faith Insurance Lawyer at Morgan & Morgan

The sooner you involve a lawyer, the better. An experienced attorney can evaluate your situation, gather evidence, and help you take the next steps.

When to File a Bad Faith Insurance Claim

Insurance companies act in bad faith for one simple reason: to increase their profits. Every claim they deny or minimize increases their bottom line. In fact, some insurers are notorious for giving their policyholders the runaround. Treating policyholders unfairly is, actually, part of their business model.

If the insurance company isn’t treating you fairly and honestly, it might be time to talk to an insurance dispute attorney. Specific actions by the insurance company that may warrant a call to Morgan & Morgan include:

• Failure to investigate a claim
• Inadequate investigation of a claim
• Failure to respond to the policyholder’s requests
• Failure to handle, process, or resolve a claim in a reasonable time frame
• Making an unreasonable settlement offer
• Making arbitrary or unreasonable demands regarding proof of loss
• Delaying or denying a claim without justification
• Refusing to acknowledge your claim altogether
• Failure to implement reasonable standards for investigating and processing claims
• Refusal to defend the insured against a lawsuit
• Denying a claim, or part of it, without explanation

Since the covenant of good faith and fair dealing is implied (not expressed) in insurance contracts, some actions may be considered bad faith regardless of the policy language. In other cases, allegations of bad faith may come down to what is actually in the policy.

What Is the Difference Between a Denied Claim and Bad Faith?

A denied claim isn’t automatically bad faith. The key difference is whether the insurer had a reasonable basis for the denial. If the denial was arbitrary, dishonest, or reckless, it may rise to bad faith.

What if My Insurer Offers a Lowball Settlement?

Don’t accept it without speaking to a lawyer. Lowball offers are a common tactic. A bad faith lawyer can evaluate the true value of your claim and negotiate on your behalf.

What Is an EUO?

An EUO stands for Examination Under Oath. It’s a formal proceeding conducted by an insurance company during the claims process where the policyholder (or claimant) is questioned under oath, usually by the insurer’s attorney.

In an EUP, you’ll be asked detailed questions about your claim, your policy, and the events surrounding the loss. The session is recorded and transcribed by a court reporter. You may be required to bring documents such as receipts, bank records, or photographs to support your claim. You have the right to have an attorney present during the EUO.

Insurance companies use EUOs to:

• Investigate potential fraud
• Clarify inconsistencies in the claim
• Confirm that the loss is covered under the policy
• Evaluate whether to approve or deny the claim

An EUO is typically used when a claim is large, suspicious, or complex. Most insurance policies require cooperation, and attending an EUO is part of that. If you refuse to participate, your claim may be denied, and/or you may be considered non-compliant, which could void your policy.

The thing to remember is an EUO is a serious legal proceeding. The insurance company may be looking for reasons to deny your claim or allege fraud. That’s why it’s highly recommended to consult with an attorney before attending.

How Can Morgan & Morgan Help?

You did your part. You paid your premiums. You followed the rules. Now your insurance company is supposed to protect you—not ignore, delay, or deny you. If they don’t live up to their promises, Morgan & Morgan is here to fight back.

We’ve recovered millions of dollars for policyholders who were mistreated by their insurers. Our nationwide team has the size, resources, and legal firepower to go head-to-head with major insurance companies and win.

And best of all, we work on a contingency fee basis. That means the Fee Is Free®, and you don’t pay unless we win.

Insurance companies have powerful lawyers on their side. You deserve the same. If you believe your insurer has acted in bad faith, don’t wait. Contact us for a free, no-obligation case evaluation. We’ll listen, review your case, and help you understand your rights. You may be entitled to far more than your original claim.