Bad Faith in Insurance Claims: Common Examples and How to Fight Back

Learn to recognize when the insurance adjuster is negotiating your personal injury claim in bad faith, and what you can do about it.

All insurers have an implied covenant of good faith with claimants. This means they promise to deal fairly and not unlawfully restrict a claimant’s rights.

Most jurisdictions in the United States have adopted Fair Claims Settlement Practices laws. This means insurance companies operating are held to a legal standard of good faith and fair dealing.

Despite these restrictions, some insurance adjusters engage in bad faith tactics.

Here we help you recognize when the adjuster crosses the line from being uncooperative to engaging in potentially unlawful bad faith practices.

What is Bad Faith in Insurance Claims?

An insurance adjuster may be dealing in bad faith if they unfairly denied your claim or use unlawful tactics during settlement negotiations.

Bad faith claims practices are illegal. You may be eligible for additional compensation above your original claim if the insurance company is found guilty of bad faith.

Dealing with a difficult adjuster’s negotiating style can be the hardest part of handling your own injury claim.

Some adjusters are hard-nosed, rude, and make you jump through hoops while trying to satisfy their requirements. These adjusters will do just about anything to avoid paying claimants, but they stay within the boundaries of “good faith” negotiations. There’s nothing much you can do about these adjusters. Just try to remain patient and persistent.

Other, more unscrupulous adjusters cross the line and engage in bad faith tactics. Instead of honestly negotiating a settlement, they disregard the legal standard and try to take advantage of claimants. If you think your adjuster is dealing in bad faith, you may have grounds for legal action against the insurance company.

Examples of bad faith practices by claims adjusters:

  • Automatically denying coverage without investigating your claim
  • Taking an unreasonable amount of time to determine if coverage was in effect at the time of your injury
  • Ignoring your phone calls, emails, or letters
  • Refusing to negotiate after you’ve filed a valid claim
  • Failing to pay or deny your claim within a reasonable time frame
  • Refusing to negotiate a fair settlement when their insured’s liability is obvious
  • Failing to provide a clear written explanation of the reasons for denying your claim
  • Improperly citing laws as an excuse to minimize or deny your claim
  • Changing adjusters solely to cause a delay once you’ve entered into negotiations
  • Intentionally dragging out negotiations until the statute of limitations expires
  • Using false or deliberately improper medical or legal terms to deny or minimize your claim

3 Ways to Fight Insurance Company Bad Faith

If you’ve decided to handle your injury claim on your own, there are several ways you can address suspected bad faith during the claims process: send a letter to the claims manager, file a complaint with your state insurance board, and consult an attorney.

Severe injury claims and wrongful death cases are best handled by an experienced personal injury attorney. Most insurers know better than to use unfair settlement practices when dealing with an attorney.

Whether you have a first or third-party claim, if you believe your adjuster is acting in bad faith, you may have the right to file a lawsuit against the insurance company – but it’s best not to start there.

1. Send a Letter to the Claims Manager

You might be able to stop potential bad faith by sending a carefully worded letter to the adjuster’s supervisor.

Stick to the facts, without threats, name-calling, or complaints that the adjuster isn’t friendly. If you sound unprofessional or overly emotional, you won’t be taken seriously.

List the reasons why you think the claims adjuster is negotiating in bad faith. Be specific. For example, instead of saying the adjuster won’t make a fair offer, explain that the adjuster refuses to come off a low-ball settlement offer of $900 when your medical bills alone exceed $1,500.

Or, instead of saying the adjuster is making flimsy excuses, explain that the adjuster keeps saying they can’t authorize settlement until they get copies of your emergency room records, even though you sent them on three different occasions (list the dates).

Make it clear you’ve been negotiating in good faith, and state:

  1. You already submitted all the relevant documentation to support your claim
  2. You complied with every reasonable request the adjuster has made
  3. Cite any other reasons you believe the adjuster has been acting in bad faith

Complete the letter by saying you hope the adjuster and the insurance company will work with you in good faith to settle your injury claim, but if they don’t, you’ll seek legal representation.

2. Notify Your State Insurance Board

If the insurance company continues to act in bad faith, you can file a complaint with your state insurance department. Once you file a written complaint, they will start an investigation.

Some states have special administrative procedures to allow third-party bad faith cases against insurance companies, even when litigation is limited to policyholders.

Your state’s insurance department can help you sort out what qualifies as bad faith. If their investigation reveals evidence of bad faith, the state can levy fines against the company and take other punitive actions.

3. Consult a Personal Injury Attorney

Insurance companies don’t like bad faith actions. They’re costly to defend and can result in huge punitive damage verdicts, not to mention severely damaging the company’s reputation. Most insurance companies will quickly rein in an adjuster before their questionable tactics put the company at risk.

There’s no reason to hold off contacting a personal injury attorney for legal advice on your options. Sometimes a letter from your attorney is all it takes to stop bad faith negotiation tricks and bring about a reasonable settlement.

Most injury attorneys offer a free consultation to injury victims, and are well versed in the bad faith laws and penalties in your jurisdiction. There’s no obligation, and it costs nothing to find out what an experienced attorney can do for you.

Who Can File a Bad Faith Lawsuit?

When you bought your homeowner or auto insurance policy, you became the “party of the first part.” Your insurance company is the “party of the second part” to the insurance contract.

If you’re injured in an accident caused by someone else and file a claim under the at-fault person’s insurance policy, you would be filing a third-party claim. It’s still a third-party claim even if you and the at-fault driver both have liability insurance policies with the same company.

Each state has different bad faith claims rules. Some states only allow first-party claimants to file a lawsuit. Some allow any insurance claimant to file a bad-faith lawsuit. Finally, some states don’t allow a private right of action, meaning actions by non-government parties for bad faith, although the state can penalize guilty insurance companies.

You will need a skilled personal injury lawyer to prevail in a bad-faith lawsuit. No matter what type of insurance is involved, you’ll be up against aggressive insurance lawyers who are dedicated to defeating your claim.

If you win, you may be awarded extra-contractual damages (meaning more than your original insurance policy claim) and the other side may be ordered to reimburse your attorney’s fees.

First-Party Claimants

Many states only allow a legal “cause of action” for bad faith in connection with first-party claims. These states’ laws only permit lawsuits against your own insurance company for bad faith and other unfair practices.

Examples of first-party insurance claims include those filed under:

  • Personal Injury Protection (PIP) coverage, typically in no-fault insurance states
  • Uninsured or Underinsured Motorist (UIM) coverage
  • Homeowners Insurance coverage

You might also have a first-party bad faith claim if you get sued because your insurance carrier refused to settle the other person’s claim, especially if the other person wins a verdict above your policy limits.

When you pay your premiums, the insurance company is supposed to protect you. Because the insurance company has a “duty to defend” your interests, by allowing you to get sued, they not only committed a breach of contract, they breached their duty of good faith dealings.

Example: First Party Bad Faith by Homeowner’s Insurance Company

During a severe summer storm, Shannon’s house was hit by lightning, causing a fire that consumed an upstairs bedroom and left a gaping hole in the roof. Between the rain and firefighters’ efforts to put out the fire, both floors sustained significant water damage.

Shannon notified her homeowner’s insurance company within 24 hours. The company acknowledged her claim and instructed Shannon to do nothing until an adjuster came out to inspect the damaged home.

Despite repeated calls from Shannon over several weeks, the insurer did not send an inspector or provide coverage for temporary housing, as listed in her policy provisions.

The house was inspected five weeks after the fire, but Shannon couldn’t get a straight answer from her insurance company for three more months. She was finally informed that there might not be insurance coverage for her house because she didn’t mitigate her damages by having the roof covered prior to the inspection.

Shannon has grounds for a bad-faith lawsuit against her homeowner’s insurance company. The insurer failed to promptly process the claim, pay benefits that were due to the policyholder, and provided misleading information in an attempt to avoid paying for her damages.

Third-Party Claimants

You’re not out of luck if you’re a third-party claimant and the at-fault party’s insurance company fails to negotiate in good faith. Many states allow third-party bad faith lawsuits. The states that don’t usually provide other “remedies” for bad faith. Speak with a local attorney about your specific situation.

Example: Bad Faith in Third Party Auto Insurance Claim 

Brenda was headed home from the grocery store with a trunk full of groceries. As she stopped for a red light two blocks from her home, she was violently rear-ended by an SUV driven by Thomas.

Thomas was driving his mom’s SUV to football practice and had several friends in the vehicle. He was distracted by laughing and joking with his friends and plowed into the back of Brenda’s car without braking. Tom was ticketed by police for following too closely and distracted driving.

Brenda was transported from the scene by ambulance, and her car was towed away. She was treated for a mild concussion and a whiplash neck injury that limited her activities for three weeks.

Brenda filed a personal injury claim with Tom’s auto insurance company, as well as a property damage claim for her vehicle damage and ruined groceries.

Although liability was clear, Brenda got the run around from the insurance adjuster from the start. The adjuster unreasonably waited several weeks before agreeing to investigate Brenda’s claim, failed to respond to her demand letter, and asked repeatedly for copies of medical records that Brenda had already provided.

After four more months with no settlement offer from the claims adjuster, Brenda has good reason to accuse the insurance company of bad faith practices.

Bad Faith Insurance Claim Questions

Charles R. Gueli, Esq. is a personal injury attorney with over 20 years of legal experience. He’s admitted to the NY State Bar, and been named a Super Lawyer for the NY Metro area, an exclusive honor awarded to the top five percent of attorneys. Charles has worked extensively in the areas of auto accidents,... Read More >>