Glossary

Bad faith

An insurer's unreasonable claim handling, such as denying or delaying payment with no reasonable basis, that can bring damages beyond the policy benefits.

Also called: insurance bad faith, bad faith claim handling, first-party bad faith

Every insurance policy carries an implied duty of good faith and fair dealing. Bad faith is breaching that duty in how a claim is handled: denying it with no reasonable basis, dragging out payment, ignoring clear evidence, failing to investigate, or misstating what the policy says. Whether you can sue for it, and what you can recover, depends heavily on state law. Some states allow a tort claim that can include punitive damages. Others offer only statutory remedies or limit the damages, and many leave most enforcement to the insurance department under unfair claims practices laws.

Bad faith is not the same as a disagreement. A low estimate, a close coverage question or a slow claim after a major storm is usually a matter for appraisal or a breach of contract suit. Courts generally ask whether the insurer had a reasonable basis for its position and acted on it.

If you suspect bad faith, build the record: dates of calls, names, written requests and the insurer's replies. A complaint to the state insurance department costs nothing, and the insurer is generally required to respond to the department. Speak with an attorney before suing, because attorney fee rules and time limits vary by state; see the suit limitation clause. The guide on what bad faith means and what it doesn't has more.

Last reviewed October 10, 2026

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Related terms

Unfair claims settlement practices act State laws, modeled on an NAIC template, that list claim-handling conduct insurers may not engage in and let the insurance commissioner discipline violators. Prompt payment law State rules that set deadlines for an insurer to acknowledge a property claim, decide it and pay it, often with interest owed on late payments. Reservation of rights A written notice that an insurer is investigating or paying a claim but keeps the option to deny coverage or limit payment later if the facts warrant it. Suit limitation clause The policy condition that sets a deadline, often one or two years from the date of loss, for filing a lawsuit against the insurer over a claim. Appraisal clause A policy condition that lets either side demand a neutral panel to set the dollar amount of a loss when you and the insurer cannot agree on its value.

Related guides

The appraisal clause: settling a claim value dispute How the appraisal clause works in a homeowners policy, what a panel can and cannot decide, what it costs, how state rules differ and when to demand it. Attorney fees and insurance litigation reform Who pays the lawyer in a home claim suit: the American rule, state fee-shifting statutes, Florida's repeal of one-way fees, and what changed for policyholders. Bad faith claim handling: what it means and what it doesn't What bad faith means in a home claim, how it differs from a low estimate or slow adjuster, what you must prove, how states differ and which evidence matters. Class actions against home insurers How class actions against homeowners insurers work, the labor depreciation cases that shaped them, what a settlement notice means, and when you should opt out. Deadlines to sue over a home insurance claim The ISO policy allows two years from the date of loss to sue. State law can cut that to 12 months or stretch it to five, and talks rarely stop the clock. Florida's 2022–2023 property insurance reforms explained What Florida's 2022-2023 property insurance laws changed for policyholders: attorney fees, assignment of benefits, claim deadlines, roof rules, grants.