Insurance contracts include an implied covenant of good faith and fair dealing. The insurer must treat policyholders honestly and follow the policy’s terms. If a claim is denied, the company must explain why and allow an appeal. When an insurer breaks that covenant — through dishonest dealing, fraud, or misrepresentation — it is acting in bad faith, and the policyholder may have a claim worth more than the original loss.
What bad-faith conduct looks like
The most common bad-faith practices include:
- Denying, discounting, or delaying payment without a reasonable basis
- Failing to investigate a claim properly
- Failing to affirm or deny coverage
- Making excessive or repetitive demands for documentation
- Misrepresenting or omitting policy language
Low-balling a claim
Low-balling is an offer that is unreasonably low for the loss. An insurer is allowed to look for the least expensive repair or medical provider — but it should not offer an amount that will not cover the actual damages. When a low offer is unreasonable and persists through negotiation, it can be a form of bad-faith dealing.
Can the insurer deny a claim at all?
Yes. An insurer can deny a claim for legitimate reasons — damage below your deductible, damage the policy does not cover, a claim that violates the policy (such as a DUI loss), or a late filing. A good-faith denial comes with a timely explanation and a chance to correct filing errors. When no timely explanation arrives, suspect bad faith.
When a clause appears that you never saw
Policies are notoriously hard to read, and the language is often deliberately obscure. If you reasonably believed you were covered, filed on that belief, and only then were shown a clause excluding the loss, talk to a lawyer. Misrepresentation is a form of fraud — if the agent failed to explain a key term, or intentionally omitted it, that can be bad-faith dealing.
Where to start and what to expect
A bad-faith claim is not an ordinary insurance claim. Louisiana (La. R.S. 22:1973) and Texas (Tex. Ins. Code ch. 541) both have statutes requiring good-faith dealing, and a bad-faith case blends insurance law and contract law. You generally must prove the claim was covered and wrongfully denied, and you must file within your state’s deadline — often two years, running from when you first realized the insurer was dealing improperly.
The remedy reaches further than a normal claim. Where ordinary tort recovery only makes you whole, a bad-faith claim can recover the denied amount plus fees and costs, and — where fraud or malicious misrepresentation is shown — punitive damages.
If you believe your insurer is not dealing fairly, an injury lawyer who handles insurance disputes can tell you whether the conduct crosses the legal line and what your claim is worth.