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What is Bad Faith Insurance?


An insurance policy is a contract between the policyholder and the insurance company. Every insurance policy includes an “implied covenant of good faith and fair dealing,” which requires that the insurance company act in good faith toward the policyholder. When an insurance company violates this covenant by acting in bad faith toward a policyholder, the policyholder may have the right to file a lawsuit against the insurance company that includes both tort (personal injury) and contract claims due to Insurance Bad Faith.

Bad faith is broadly defined as dishonest dealing. Examples of bad faith practices by insurance companies include:

  • Denying payments without a reasonable basis
  • Discounting payments without a reasonable basis
  • Delaying payments without a reasonable basis
  • Failing to affirm or deny coverage of claims within a reasonable time
  • Failing to conduct proper, prompt, and thorough investigations into claims
  • Making burdensome requests for documentation
  • Misrepresenting the law or policy language

Why is bad faith insurance important?

If an insurer is found to have acted in bad faith, the policyholder may be entitled to recover an amount greater (and in some cases, much greater) than the insurance policy limit, or the amount of the claim that was wrongly denied by the insurance company. Bad faith insurance lawsuits not only serve the purpose of compensating the insured, but can also discourage insurance companies from acting in bad faith in the future.

I need to make a claim with my insurance company. What should I do?

If you need to make a claim with your insurance company, you should submit your claim as soon as possible after the triggering event (such as an auto accident; damage to your home; receipt of medical bills or a referral for medical services by a doctor). It is also helpful to contact an agent at your insurance company immediately to notify him or her of your claim. Review your insurance policy for relevant provisions. Carefully document your claim and any interactions you have with your insurance company. You have a duty to cooperate with your insurance company, but is always best to have an attorney before giving any formal recorded statements regarding your claim. You should answer any questions your insurance company asks truthfully, completely, and accurately.

Is there a statute of limitations for bad faith insurance lawsuits?

Generally, the statute of limitations for a bad faith insurance lawsuit is two years from the date of the insurance company’s bad faith conduct. However, it can be very difficult to determine when a claim for bad faith against an insurance company accrues (meaning when the statute of limitations begins to run). You should contact Mehr Fairbanks Trial Lawyers right away if you believe your insurance company is acting in bad faith. A delay could result in your claim being barred by the statute of limitations.

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