Insurance bad faith is when an insurance company treats a valid claim unreasonably — denying it without a good reason, dragging it out, or offering far less than it is worth. Insurers owe a duty of good faith, and when they break it, they can face consequences beyond simply paying the original claim.
Bad faith most often comes up with your own insurer — for example, on an uninsured motorist claim — because that is where the duty of good faith is strongest. An unreasonable denial or lowball on a claim you are entitled to may be more than an ordinary dispute.
Proving bad faith takes documentation of the claim and the insurer's conduct. If an insurer is treating you unreasonably on a valid claim, it is worth having someone look at whether their behavior crosses the line.