What is Insurance Bad Faith?
An insurance company's unreasonable denial, delay, or underpayment of a legitimate insurance claim in violation of its duty of good faith and fair dealing.
Understanding Insurance Bad Faith
Insurance bad faith occurs when an insurer fails to fulfill its contractual obligations without a reasonable basis. Examples include failing to investigate claims promptly, denying claims without a valid reason, offering unreasonably low settlements, and misrepresenting policy provisions. Policyholders can sue for bad faith and potentially recover damages beyond the policy limits, including emotional distress and punitive damages.
Examples
- 1Insurer denying a valid claim without conducting a proper investigation
- 2Unreasonable delay in processing and paying a covered claim
- 3Insurer offering a lowball settlement far below the claim's value
Related Terms
Bad Faith Insurance
When an insurance company unreasonably denies, delays, or underpays a valid claim, or fails to properly investigate or defend its insured.
First-Party Claim
An insurance claim filed by a policyholder against their own insurance company for losses covered under their policy.
Coverage Denial
When an insurance company refuses to pay a claim, asserting that the loss is not covered under the policy terms or that the policy was not in effect.
Claims Adjuster
An insurance company employee or contractor who investigates claims, determines coverage, and evaluates damages to recommend settlement amounts.
Reservation of Rights
A formal notice from an insurance company informing the policyholder that while they will investigate or defend a claim, they reserve the right to deny coverage or limit their obligations later.
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