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⚖️ '''Bad faith''' is a legal doctrine in insurance that arises when an [[Definition:Insurance carrier | insurance carrier]] unreasonably denies, delays, or underpays a legitimate [[Definition:Claim | claim]] without a proper basis, thereby breaching its duty of good faith and fair dealing owed to the [[Definition:Policyholder | policyholder]]. Unlike a simple [[Definition:Coverage dispute | coverage dispute]], bad faith implies that the insurer acted dishonestly, with reckless disregard for the insured's rights, or prioritized its own financial interests over its contractual obligations. The concept has deep roots in insurance contract law and has become a significant area of [[Definition:Insurance litigation | insurance litigation]] across American jurisdictions.

🔍 When a policyholder files a claim, the insurer is obligated to conduct a thorough and timely investigation, communicate transparently, and pay valid claims within a reasonable timeframe. Bad faith occurs when the carrier departs from these obligations — for example, by imposing unreasonable documentation demands, misrepresenting policy language to justify a denial, or failing to acknowledge receipt of a claim for extended periods. Policyholders who believe they have been subjected to bad faith can pursue legal action seeking not only the original [[Definition:Claim payment | claim payment]] but also consequential damages, emotional distress awards, and in many states, [[Definition:Punitive damages | punitive damages]]. Some jurisdictions also allow [[Definition:Third-party claim | third-party claimants]] to bring bad faith suits directly against the insurer, particularly when an insurer refuses to settle a [[Definition:Liability claim | liability claim]] within [[Definition:Policy limit | policy limits]].

💡 Carriers and [[Definition:Claims adjuster | claims adjusters]] pay close attention to bad faith exposure because it can dwarf the value of the underlying claim itself. A single bad faith verdict can result in multimillion-dollar judgments, reputational harm, and increased [[Definition:Regulatory oversight | regulatory scrutiny]]. For this reason, [[Definition:Claims management | claims management]] protocols, internal audit practices, and [[Definition:Compliance | compliance]] training programs frequently emphasize proper documentation and fair handling standards. Insurtech platforms that automate parts of the [[Definition:Claims process | claims process]] must be carefully designed to avoid systemic patterns — such as algorithmic denial — that could expose carriers to bad faith allegations on a large scale.

'''Related concepts'''
{{Div col|colwidth=20em}}
* [[Definition:Duty of good faith and fair dealing]]
* [[Definition:Claims management]]
* [[Definition:Punitive damages]]
* [[Definition:Unfair claims settlement practices]]
* [[Definition:Insurance litigation]]
* [[Definition:Policyholder rights]]
{{Div col end}}

Definition:Bad faith - Revision history

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