Signs Your Insurance Company is Acting in Bad Faith

Recognizing the Red Flags: When Your Insurer Breaches Its Duty

Insurance is a contract of utmost good faith, a two-way street of trust where you pay premiums expecting your insurer to honor legitimate claims. However, sometimes insurers prioritize their bottom line over their policyholders’ well-being. This is known as “bad faith” insurance practices. Policyholders must be able to identify the tactics used to delay, underpay, or wrongfully deny claims.

1. Unreasonable Delay and Stalling Tactics

A primary indicator of bad faith is an unreasonable delay in processing your claim without a valid justification. While insurers have a right to conduct a thorough investigation, they must do so promptly and efficiently.

• Endless Requests for Information: The company repeatedly asks for the same documents you have already provided or demands obscure, irrelevant records not required under your policy. This is designed to frustrate you into abandoning the claim.
• Failing to Acknowledge or Communicate: You submit a claim and receive no confirmation, no adjuster assignment, and no timeline for weeks or months. Your calls and emails go unreturned.
• Constant Reassignment of Adjusters: Your claim is shuffled between multiple adjusters, each requiring you to re-explain the entire situation, causing significant setbacks each time.
• Missing Legal Deadlines: Most states have specific laws requiring insurers to acknowledge a claim within a set number of days (e.g., 15 days) and make a decision within a certain period (e.g., 40 days) after receiving proof of loss. Ignoring these statutes is a clear violation.

2. Denial of a Claim Without a Valid Explanation

An outright denial is not inherently bad faith; some claims are legitimately excluded. Bad faith occurs when the denial is baseless, vague, or misapplies policy language.

• Vague or Boilerplate Denial Letters: The denial letter lacks specific reasons, simply citing a “policy exclusion” without explaining how it applies to your facts. A good faith denial always includes a detailed, policy-specific explanation.
• Misinterpreting the Policy: The insurer twists the language of your policy to create an exclusion that doesn’t exist. For instance, denying a water damage claim by incorrectly labeling it “flood damage,” which is a separate coverage requiring a specific policy.
• Failing to Investigate Before Denying: The law requires insurers to conduct a reasonable investigation before denying a claim. A denial based on a hasty, incomplete, or biased investigation is a hallmark of bad faith.
• “Low-Ball” Offers or Undervaluing Claims

A common tactic is to make a settlement offer that is far below the fair value of your claim, hoping you will accept it out of financial desperation.

• Ignoring Supporting Evidence: You provide contractor estimates, receipts, and expert reports validating your loss, but the insurer dismisses them without a credible counter-argument or appraisal.
• Using Inaccurate Calculations: For example, offering Actual Cash Value (ACV) when you are entitled to Replacement Cost Value (RCV), or using outdated pricing data to estimate repair costs.
• Refusing to Consider Related Damages: In an auto accident claim, offering to repair the visible damage but refusing to cover necessary diagnostic work on potentially compromised mechanical or electrical systems.

3. Failure to Defend or Indemnify in Liability Claims

If you are sued and have liability coverage (e.g., auto, homeowners, commercial general liability), your insurer has a “duty to defend” you by providing legal counsel. They also have a “duty to indemnify,” meaning to pay for covered losses up to your policy limits.

• Refusing a Legal Defense: The insurer refuses to provide an attorney even though the lawsuit against you alleges facts that could potentially be covered under your policy.
• Reserving Rights Unfairly: While insurers can issue a “reservation of rights” letter when coverage is uncertain, they may use it in bad faith to avoid their duties, creating a conflict of interest for the attorney they assign to you.
• Exposing You to Excess Judgment: If a lawsuit against you could result in a judgment exceeding your policy limits, the insurer has a duty to act in your best interest. Bad faith occurs if they refuse a reasonable settlement offer within policy limits, choosing to gamble at trial and exposing you to personal financial ruin.

4. Making Threats or Retaliatory Actions

An insurer wields significant power, and some may use intimidation tactics to discourage you from pursuing your rightful claim.

• Threatening Policy Cancellation: Suggesting or outright stating that your policy will be canceled or not renewed if you proceed with your claim.
• Intimidation through Complexity: Using complex legal and insurance jargon to confuse you and make the process seem too daunting to challenge.
• Launching a Fraud Investigation Without Cause: While insurers have a right to investigate suspected fraud, initiating an aggressive, burdensome investigation based on a mere hunch or minor discrepancy is often a bad faith stalling technique.

5. Failure to Communicate or Provide Explanations

Transparency is a core component of good faith. Opaque practices are a major warning sign.

• Withholding Policy Information: Failing to provide a full copy of your policy upon request or obscuring the terms and conditions.
• Not Explaining the Process: You are left in the dark about the next steps, who is handling your file, and what is expected of you.
• Ignoring Legal and Regulatory Standards: Every state has Unfair Claims Practices Acts that outline specific requirements for insurers, such as providing a reason for denial, communicating promptly, and conducting fair investigations. Violating these statutes is evidence of bad faith.

What to Do If You Suspect Bad Faith

If you recognize these signs, you must take proactive steps to protect your rights.

1. Document Everything: Keep a detailed log of every interaction: dates, times, names of representatives, and summaries of conversations. Save all written communication, including letters, emails, and claim forms.
2. Put It in Writing: Follow up verbal conversations with an email summarizing what was discussed. This creates a paper trail and reduces “he said, she said” disputes.
3. Know Your Policy: Read your insurance policy carefully. Understand your coverages, exclusions, and duties after a loss (like mitigating further damage).
4. File a Complaint with Your State Department of Insurance: Insurance regulators oversee the industry. A formal complaint can prompt an investigation and often motivates the insurer to reassess your claim.
5. Consult a Bad Faith Insurance Attorney: These attorneys specialize in holding insurance companies accountable. They understand the complex laws and can assess whether you have a case. Most work on a contingency fee basis, meaning they only get paid if you win. A strongly worded letter from an attorney is often enough to make the insurer reconsider its position. If not, they can file a lawsuit not just for the original claim amount, but also for additional damages permitted under bad faith laws, which can include emotional distress, consequential damages, and even punitive damages.