What Is Bad Faith in a First-Party Property Insurance Claim and How Can Property Owners Spot It?

What Is Bad Faith in a First-Party Property Insurance Claim and How Can Property Owners Spot It?

Property insurance is meant to provide policyholders with financial protection when disaster strikes. However, not all insurance companies handle claims fairly. When an insurer unreasonably delays, undervalues, or outright denies a legitimate claim without proper justification, it may be acting in bad faith. Recognizing the signs of bad faith is crucial for property owners to protect their rights and receive the coverage they deserve.

What Is Bad Faith in a First-Party Property Insurance Claim?

Bad faith occurs when an insurance company fails to uphold its duty to act honestly, fairly, and in good faith when handling a claim. In the context of first-party property insurance, bad faith can take several forms, including:

• Unreasonable Delays – The insurer takes an excessive amount of time to investigate or process a claim without valid reasons. Many states have laws limiting how long an insurance company has to make claim determinations and payments.

• Unjustified Denials – The insurer denies a claim without providing a clear explanation or citing an invalid reason, such as attributing the damage to wear and tear or pre-existing conditions despite not having proof to the contrary.

• Underpayment of Claims – The insurer undervalues the damages, offering a settlement that is far below what is required for repairs or replacement.

• Failure to Investigate – The insurer does not conduct a thorough assessment of the damage before making a coverage determination or utilizes adjusters without the proper training or expertise to conduct inspections.

• Misrepresentation of Policy Terms – The insurer intentionally misinterprets or misapplies policy language to limit or deny coverage.

• Refusal to Communicate – The insurer ignores or refuses to respond to policyholders’ inquiries or documentation.

If an insurer engages in any of these practices, it may be acting in bad faith, leaving the policyholder in a difficult financial situation.

How Can Property Owners Spot Bad Faith in Their Own Claims?

Property owners should be vigilant when dealing with insurance companies and watch for warning signs of bad faith practices. Here are some key red flags to look for:

• Unexplained Delays in Processing - If your insurer is unresponsive, continuously requests unnecessary documents, or keeps extending deadlines, they may be attempting to stall your claim.

• Lack of Clear Communication - If the insurance company does not provide clear reasons for delays, denials, or payment reductions, this could indicate bad faith.

• Lowball Settlement Offers - If the insurer’s estimate for repairs is significantly lower than contractor estimates you have received, they may be intentionally undervaluing the claim.

• Inconsistent or Contradictory Statements - If different representatives of the insurer provide conflicting information, it may be a tactic to confuse and frustrate the policyholder into accepting a lower settlement.

• Refusal to Provide Written Explanations - If your insurer denies your claim but refuses to provide a written explanation or reference to specific policy provisions, they may be acting in bad faith.

• Requests for Unnecessary Information - Repeatedly asking for the same documents or demanding unrelated information can be a delay tactic.

• Misrepresentation of Policy Coverage - If the insurer wrongly claims that damage is not covered or attempts to reinterpret the policy’s language to avoid payment, this could be a sign of bad faith.

What Can Property Owners Do If They Suspect Bad Faith?

If a property owner believes their insurer is acting in bad faith, they should take the following steps:

1. Document Everything – Keep detailed records of all communications with the insurance company, including emails, letters, phone calls, and claim-related documents.

2. Request a Written Explanation – Ask the insurer for a written justification of their decision, including references to specific policy provisions.

3. Obtain an Independent Estimate – Hire an independent contractor or public adjuster to assess the damage and provide an unbiased repair estimate.

4. File a Complaint – Report the insurer’s behavior to the state insurance department.

5. Consult an Insurance Attorney – If the issue persists, seeking legal advice can help determine whether a lawsuit for bad faith practices is warranted.

Final Thoughts

Bad faith insurance practices can leave property owners struggling to recover from damage that should be covered by their policy. By recognizing the warning signs and taking proactive steps, policyholders can protect their rights and hold insurance companies accountable. If an insurer is not treating you fairly, Averill & Reaney is here for you. We’ll work to hold your insurance company responsible and get you the treatment you deserve. Contact us now to speak with an attorney and get started on your claim!

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