Insurance Bad Faith: When Your Insurer Is Breaking the Rules

There's a difference between insurance wrongly denying a claim (which happens often) and insurance acting in bad faith (which is illegal). Bad faith is when an insurer acts dishonestly, unreasonably, or in violation of their own policies to avoid paying a claim.

Understanding bad faith can help you recognize when your situation goes beyond a simple appeal and enters territory where regulators or courts take serious action.

What Exactly Is Insurance Bad Faith?

Insurance bad faith is conduct by an insurer that is:

• Deceptive or dishonest: Insurance lies, misrepresents facts, or conceals information
• Unreasonable: Insurance refuses to pay a clearly covered claim, or denies without reasonable investigation
• Violation of implied covenant: Insurance fails to deal fairly and honestly (this is implied in all insurance contracts)
• In violation of policy terms: Insurance denies despite the policy clearly covering the claim

Bad faith is distinct from simply being wrong. An insurer can wrongly deny a claim (requiring appeal) while also committing bad faith (requiring regulatory complaint or lawsuit).

Examples of Insurance Bad Faith

Denying a Clearly Covered Claim Without Investigation

Example: You have a cancer treatment denial. Your policy covers cancer treatment. The treatment is recommended by your oncologist. Insurance denies without reviewing your medical records or the treatment plan. This is bad faith—they denied a clearly covered claim without reasonable investigation.

Misrepresenting Policy Terms

Example: Insurance tells you "your policy doesn't cover X" when your policy actually does. They've misrepresented the policy to discourage your claim. This is bad faith.

Failing to Respond to Requests

Example: You've requested documentation, appeals, or information multiple times. Insurance never responds. This is bad faith—they're not dealing with you in good faith.

Retroactively Denying an Approved Claim

Example: Insurance initially approved your claim and you underwent treatment. Months later, they retroactively deny it claiming you didn't meet requirements. This is often bad faith—they had the same information at approval, and retroactively changing the decision suggests the initial approval was correct.

Ignoring Medical Evidence

Example: Your physician provides detailed documentation that treatment is medically necessary. Insurance ignores the evidence and denies anyway, without explaining why they disagree with your physician's judgment. This suggests bad faith.

Requiring Impossible Documentation

Example: Insurance denies your claim saying it lacks documentation, but the documentation they're requesting is impossible to obtain (from a deceased provider, destroyed in a disaster, etc.). This is bad faith—they're setting an impossible standard to deny the claim.

Misapplying Their Own Policies

Example: Insurance's own policies state they should approve claims meeting certain criteria. Your claim meets those criteria. They deny anyway and cannot explain which criteria you failed. This suggests bad faith application of their own rules.

Deliberately Delaying Processing

Example: You've submitted everything insurance requested. Weeks and months pass with no response and no explanation. Insurance is deliberately delaying to wear you down. This is bad faith.

How to Document Bad Faith

If you suspect bad faith, documentation is critical. It's what regulators and courts consider.

Keep All Communication

Save:

• Every email from insurance
• Records of every phone call (date, time, person you spoke with, what they said)
• Every letter or document sent to insurance
• Every denial letter
• Every follow-up communication

Document Timeline

Create a detailed timeline:

• Date you submitted claim
• Date you received denial
• Dates you requested information and responses
• Dates of phone calls and what was discussed
• Dates you sent appeal materials
• Dates you requested documentation from insurance

Write Summary of Bad Faith Conduct

Document specifically what the bad faith was:

• What did insurance do that was unreasonable?
• What policy or rule did they violate?
• What evidence did they ignore?
• How did their conduct differ from their stated policies?
• What harm resulted from their conduct?

Get Your Physician's Perspective

Ask your physician to document:

• Whether they provided medical evidence insurance ignored
• Whether insurance's denial contradicts standard medical practice
• Whether the denial delayed necessary treatment
• Any harm from the delay

Examples of How to Document Each Type of Bad Faith

For Unreasonable Denial

"Insurance denied my claim for [treatment] on [date]. My policy covers [condition]. The treatment is [FDA-approved/standard of care]. Insurance did not explain which policy term excludes this coverage. This is unreasonable denial of a clearly covered claim."

For Misrepresentation

"On [date], insurance told me [misstatement about what's covered]. My actual policy states [correct policy language]. Insurance either misunderstood the policy or deliberately misrepresented it to discourage my claim."

For Ignoring Evidence

"I provided [specific medical documents] to insurance on [date]. My physician documented [specific clinical finding]. Insurance denied without addressing or explaining why they disagreed with this evidence. This suggests bad faith disregard of clear medical evidence."

For Retroactive Denial

"Insurance approved my claim on [date]. I underwent the covered treatment. Months later, insurance retroactively denied it. They had the same information during approval. The retroactive change suggests the initial approval was correct, and the retroactive denial is bad faith."

When to Escalate Beyond a Simple Appeal

If you suspect bad faith, escalation becomes appropriate:

Regulatory Complaint

File a complaint with your insurance regulator (see article on filing regulator complaints) and specifically allege bad faith. Regulators take bad faith very seriously and will investigate.

Include in your complaint:

• What conduct you believe constitutes bad faith
• Documentation of the conduct
• How it violated insurance regulations or laws
• What harm resulted

Legal Consultation

Consider consulting an attorney if:

• The claim amount is large ($10,000+)
• Bad faith conduct is clear (deliberately ignoring evidence, retroactive denial, etc.)
• Insurance's conduct caused significant harm (delayed necessary treatment, financial hardship)
• Your regulator investigation isn't resolving the issue

Many attorneys will provide free initial consultations. Some take bad faith cases on contingency (you pay only if they win).

What Regulators Can Do About Bad Faith

If you file a bad faith complaint with your regulator:

• They investigate whether bad faith actually occurred
• If found, they can order insurance to pay your claim plus penalties
• They can fine the insurance company
• They can require the insurer to change practices
• They may refer cases to law enforcement for criminal fraud investigation (in severe cases)

Regulators take bad faith seriously because it threatens consumer protection.

What Courts Can Do About Bad Faith

If you sue for bad faith:

• Courts can require insurance to pay your claim
• Courts can award damages beyond the claim amount (punitive damages)
• Courts can award your attorney fees
• Courts can find the insurer's conduct unconscionable

Bad faith lawsuits are powerful when the conduct is clear and well-documented.

Important: Legal Disclaimers on Bad Faith

Bad faith is a serious allegation. Be certain before you make it:

• Document everything thoroughly
• Ensure the conduct truly violates bad faith standards (not just wrongful denial)
• Consider getting legal advice before alleging bad faith
• Don't make allegations you cannot support with evidence

False bad faith allegations can backfire and harm your case.

Recognizing the Line Between Denial and Bad Faith

Wrongful denial: Insurance denies your claim but their process was reasonable and they had some basis for the denial, even if they were ultimately wrong.

Bad faith denial: Insurance denies unreasonably, ignores evidence, misrepresents policy, acts deceptively, or violates their own procedures.

Most insurance claim denials are wrongful denials (requiring appeal). Some are bad faith (requiring regulatory or legal action).

Getting Help Recognizing and Documenting Bad Faith

Determining whether conduct constitutes bad faith requires understanding insurance law and regulations. You need to recognize the line between legitimate denial and illegal bad faith conduct.

ClaimBack's AI can help you analyze your situation and determine whether bad faith conduct occurred. If it did, we can help you document it and prepare a compelling bad faith allegation for regulator complaint or attorney consultation.

Analyze your situation for possible bad faith →

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Disclaimer: ClaimBack provides AI-generated appeal assistance for informational purposes only. ClaimBack is not a law firm and does not provide legal advice. Always review your appeal letter before sending and consider professional advice for complex or high-value claims. For potential bad faith cases, strongly consider consulting with an attorney.

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