Bad Faith Claim
Definition
A bad faith claim is a legal cause of action against an insurance company for unreasonable claims handling practices. It allows the insured (or in some cases, third-party claimants) to recover damages beyond policy benefits when the insurer breaches its duty of good faith and fair dealing. Bad faith claims are separate from the underlying insurance claim and can result in significant additional compensation including attorney fees and punitive damages.
How It’s Used in Personal Injury Cases
Bad faith claims may be first-party (by the insured against their own insurer) or third-party (arising when an insurer fails to protect its insured from excess liability). Common bases include failing to properly investigate claims, misrepresenting policy coverage, refusing to pay claims without reasonable basis, failing to settle within policy limits when liability is clear, and employing unfair tactics to pressure claimants into accepting inadequate settlements. Successful bad faith claims can recover consequential damages, emotional distress, attorney fees, and potentially punitive damages.
Practical Example
Despite clear documentation of Laura’s injuries from a rear-end collision, the at-fault driver’s insurance company denied her claim for six months, then offered only $5,000 for $75,000 in damages. Investigation revealed the adjuster never reviewed her medical records and was following a company practice of “low-balling” all claims. Laura filed a bad faith claim under the Texas Insurance Code, ultimately recovering her full damages plus attorney fees and additional penalties for the insurer’s unfair practices.
Why It Matters to Your Case
A bad faith claim provides recourse when insurance companies treat you unfairly. It gives insurers incentive to handle claims properly and can significantly increase your recovery beyond policy limits. If you believe an insurance company is acting unreasonably—whether your own insurer or the at-fault party’s—document everything and discuss potential bad faith claims with your attorney.
Key Takeaway
A bad faith claim holds insurance companies accountable for unfair practices—it can recover damages beyond policy limits including penalties and attorney fees when insurers act unreasonably.