Bad Faith Insurance: What It Is, How to Identify It, and How to Fight Back

Unreasonable delay: Stalling the claims process without legitimate reason. Failing to respond to communications. Requesting redundant documentation to delay payment.

Lowball offers: Offering substantially less than the clear value of a claim with no reasonable basis for the lower valuation.

Failure to investigate: Processing a claim with a rubber-stamp denial without conducting a meaningful investigation.

Misrepresenting policy provisions: Telling a claimant a loss isn't covered when the policy language clearly covers it.

Refusing to communicate the denial basis: Giving vague denials without explaining which policy provision applies and why.

Improper cancellation: Cancelling a policy after a loss to avoid paying the claim.

Applying incorrect legal standards: Using an incorrect standard to evaluate a health insurance claim (e.g., applying a more restrictive coverage standard than required by the policy).

Key: Bad faith requires that the insurer acted unreasonably and without a legitimate basis for its position — not just that they denied a claim you believe should have been paid. A good-faith denial of a genuinely contested coverage question is not bad faith.

Building a bad faith case requires a paper trail:

1. Keep every piece of correspondence: Every letter, email, and note from every phone call (date, time, representative name, what was said). Bad faith is often proved through the pattern of delay and evasion, not a single event.
2. Document unreasonable delays: Note when you submitted each document and when the insurer responded (or didn't). Regulatory deadlines exist for a reason — track them.
3. Get the adjuster's file: You're entitled to a copy of your claim file in most states. The file contains the adjuster's notes, internal evaluations, reserve amounts, and communications. This internal documentation sometimes contains explicit evidence of bad faith (e.g., notes showing the adjuster knew the claim was valid but was instructed to deny).
4. Document the financial impact: Bad faith damages include consequential damages — costs you incurred because the claim wasn't paid (temporary housing costs, repair costs you had to fund personally, medical costs, etc.)
5. Preserve all physical evidence: Don't repair covered damage until the insurer has had opportunity to inspect — and if they delay inspection unreasonably, document that too.

Before filing a bad faith lawsuit in some states, you must send a demand letter placing the insurer on notice. Even where not required, a strong demand letter often resolves bad faith cases without litigation.

Your demand letter should:

• Document the specific facts of your claim and the insurer's response
• Identify the specific regulatory and contractual provisions violated
• Provide a specific demand amount (underlying claim + damages)
• Set a reasonable response deadline (30 days)
• State your intention to pursue bad faith litigation and regulatory complaints if not resolved

In Texas, a specific demand letter under the Insurance Code triggers specific statutory remedies and potential treble damages for subsequent violations. The letter itself becomes a procedural requirement. Know your state's specific requirements.