Property claims glossary
What is insurance bad faith?
Bad faith is the legal exposure a carrier faces when it handles a claim unreasonably, for example through unreasonable delay, an inadequate investigation or a denial without a proper basis. It matters because damages can exceed the policy limits, and the best protection is a consistent, documented decision on every claim.
Worked example · fictitious claim
A carrier denies a $60,000 water claim citing an exclusion that does not fit the facts, and the family sues. Suppose a court finds the denial unreasonable and awards the $60,000 claim, $9,000 of interest and $45,000 of the family's attorney fees. The carrier owes $60,000 + $9,000 + $45,000 = $114,000, nearly twice the original claim, before any further damages.
How it affects a settlement
Bad faith does not change what the policy owes, but it adds costs on top when the handling is unreasonable. Paying undisputed amounts on time and explaining any denial clearly in writing are the plainest protections.
In practice
The legal exposure a carrier faces for handling a claim unfairly: unreasonable delay, inadequate investigation, or denial without proper basis. The strongest protection is a consistent, documented, evidence-backed process: the same careful check applied to every claim, with the reasoning preserved.
Related
Prompt-pay laws · Claim file · AI claims audit trail · property claims glossary