Personal Injury · Haute Lawyer Network
What Is Insurance Bad Faith?
Last reviewed: June 2026
Insurance bad faith is a legal claim against an insurance company for failing to fulfill its contractual and legal duties to a policyholder in good faith. Every insurance contract contains an implied covenant of good faith and fair dealing — insurance companies must promptly investigate claims, communicate honestly, and pay valid claims without unreasonable delay or denial. When insurers violate this duty, policyholders may have a bad faith claim in addition to their breach of contract claim for the underlying coverage dispute.
First-party bad faith involves your own insurer's treatment of your claim — such as your homeowner's insurer unreasonably denying a fire loss claim. Third-party bad faith involves a liability insurer's handling of a claim against you — particularly when the insurer refuses to settle within policy limits, exposing you to a judgment in excess of your coverage.
Frequently Asked Questions
What constitutes bad faith by an insurance company?
Unreasonably denying a valid claim, failing to properly investigate, delaying payment without justification, misrepresenting policy terms, failing to communicate the basis for denial, and refusing to settle within policy limits when liability is clear are all common bad faith conduct.
What damages are available in a bad faith case?
Contract damages — the covered amount that was wrongfully denied — plus consequential damages caused by the bad faith delay or denial, emotional distress damages in some states, attorney fees, and in cases of egregious conduct, punitive damages.
What is a Stowers demand?
A Texas-specific legal doctrine requiring a liability insurer to accept a reasonable settlement demand within policy limits when liability is reasonably clear. Failure to accept creates extracontractual liability if a judgment exceeds the policy limits.
How do I prove my insurer acted in bad faith?
Document all communications with the insurer, keep all written denials, request a written explanation for any denial or delay, and consult an insurance bad faith attorney who can evaluate whether the insurer's conduct fell below the required standard.
Does filing a bad faith claim affect my underlying coverage dispute?
No. The bad faith claim is separate from — though related to — the underlying coverage dispute. You can pursue both simultaneously.
Related Questions
Are you a Personal Injury attorney?
Join Haute Lawyer Network and have your profile featured alongside these answers.
Apply for Membership →This information is provided for general informational purposes only and does not constitute legal advice or create an attorney-client relationship.