Every policyholder deserves fair treatment, and the law exists to protect those rights.
The Promise of Insurance
When people purchase insurance, they’re paying for peace of mind and security, in which consumers are expected to have coverage when they’ve paid premiums and followed policy rules. The promise is quite simple, if something goes wrong, the insurance company will step in and honor the policy. Unfortunately, for many consumers, this is not the case and are ultimately left with little to no coverage when they need it most. As personal injury lawyers and co-founders of Spetsas Buist, we aim to ensure that the public is well educated on their rights as policyholders.
There are many individuals and families who did everything right, paid their premiums on time, followed their policy, and were still faced battling their own insurance company. Insurance bad faith isn’t rare, according to a February 2025 report, issues with claims handling accounted for 62.5 % of all insurance complaints filed in 2024, with delays and unsatisfactory settlements among the most common problems faced by policyholders.
What Is Insurance Bad Faith?
Insurance companies that fail to meet their legal duty to act fairly, honestly, and in good faith toward their policy holder are said to be acting in bad faith. Common examples of this are denying a valid claim without justification, ignoring evidence, dragging out claims process, or offering a settlement significantly lower than the actual value of the claim.
These tactics are not accidental. Many are the result of internal cost-containment strategies that prioritize minimizing payouts, even when coverage clearly applies. In doing so, insurers shift the financial burden onto policyholders who are already navigating stressful and vulnerable situations.
It’s crucial to know the difference between a simple claim denial and a bad faith claim because this will dictate whether you can sue for extra damages such as attorney fees, consequential, and punitive damages. A simple claim denial is a contractual dispute based on policy language involving legitimate or mistaken interpretation of policy exclusions.A bad faith claim differs from this as it’s based on unreasonable, dishonest, or reckless refusal to pay a claim, violating the insurer’s duty of good faith.
First-Party vs. Third-Party Bad Faith Claims
Both first-party and third-party bad faith claims are unreasonable conduct, but differ in who holds the policy. First-party bad faith claims involve an insurer violating the duty of good faith to its own policyholder by denying a valid claim, while third-party bad faith claims involve an insurer failing to properly settle or defend a claim against its insured, exposing them to personal liability.
For example, a first-party bad faith claim happens when an insurance company treats its own customer unfairly, such as denying a claim without reasonable investigation, failing to provide a reason for denial, or unreasonable delays in payment. A third-party bad faith claim happens when an insurance company mishandles a claim involving someone else, like refusing to settle a case within policy limits, failing to defend the policymaker against a lawsuit, or misrepresenting policy terms to the injured third party.
Knowing the difference between first-party and third-party bad faith claims helps you recognize when an insurance company may have crossed the line. Whether it’s unfairly denying your own claim or failing to properly handle a claim involving someone else, these protections exist to hold insurers accountable for how they treat people.
Warning Signs Consumers Should Watch For
Consumers should look out for several key red flags that indicate an insurer is not acting in good faith, and here are a few top warning signs:
Unreasonable or Excessive Delays – The insurer takes an excessively long time to process a claim, fails to provide updates, or deliberately stalls, hoping the policyholder will give up or accept a lower settlement.
Denial Without Explanation – A claim is denied without a valid, clear, or written reason. The explanation given may be vague, contradictory, or illogical.
Lowball Settlement Offers – Offering a settlement that is significantly less than the actual value of the claim, often pressuring the policyholder to accept quickly due to financial stress.
Misrepresentation of Policy Terms – Intentionally misinterpreting policy language, ignoring clear coverage terms, or lying about what is covered to avoid payment.
When these warning signs appear, policyholders should understand that they are not powerless, and that an insurer’s conduct may cross the line into bad faith.
How to Protect Yourself
If you recognize any of these signs and suspect your insurance company is acting in bad faith, it’s important to follow certain steps to ensure you are protected.
Always document everything. Keep a running record of all communications, including dates, names, and summaries of conversations. Try to follow up with phone calls or emails to ensure you have these communications in writing. Another way to protect yourself is to understand your coverage to identify when an insurer is misrepresenting it. If your insurer is not cooperating, do not sign any releases or accept any lowball offers without reviewing your policy or consulting an attorney.
Ultimately, protecting yourself comes down to being informed, proactive, and cautious throughout the claims process. Insurance companies have teams of adjusters and attorneys working on their behalf, and policyholders deserve the same level of advocacy. When an insurer refuses to act fairly or honor its obligations, seeking experienced legal guidance can be a critical step in protecting your rights and ensuring you receive the benefits you are entitled to under the policy.
As attorneys who have seen insurers put profits over people, we know how important it is for policyholders to assert their rights. At Spetsas Buist, we fight to hold insurers accountable and ensure clients receive the coverage they are owed. Every policyholder deserves fair treatment, and the law exists to protect those rights.
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