What Is Bad Faith in Property Insurance Claims and How Do You Spot It?

What Is Bad Faith in Property Insurance Claims and How Do You Spot It?

Property insurance is meant to provide peace of mind. Whether you own a home, a rental property, or a business, you expect your insurance company to step in when disaster strikes. However, not all insurers act in good faith when handling claims. Some engage in what is known as carrier bad faith, a practice where an insurance company fails to honor its obligations to policyholders. Understanding what bad faith looks like—and how to recognize it—can help property owners protect their rights and seek remedies when necessary.

Understanding Carrier Bad Faith

At its core, carrier bad faith occurs when an insurance company deliberately acts against the best interests of its policyholder. Insurers have a legal duty to handle claims honestly, fairly, and promptly. This duty is implied in every insurance contract. When an insurer violates that duty—by wrongfully denying a claim, delaying payment without justification, or otherwise trying to avoid paying what is owed—it may be acting in bad faith. Importantly, bad faith goes beyond simple mistakes or disagreements. It involves intentional or reckless conduct that deprives the policyholder of the benefits they are entitled to under the policy.

Common Examples of Bad Faith Practices

There are several red flags that suggest an insurer may be acting in bad faith. One of the most obvious is an outright denial of a valid claim without providing a reasonable explanation. Another is the use of unreasonable delays, where adjusters continually request redundant information or fail to respond to inquiries in a timely manner. Some insurers also misrepresent policy language, attempting to convince policyholders that certain damages are not covered when they actually are. Lowball settlement offers—where the company offers significantly less than the documented damages—are another common tactic. Finally, refusing to conduct a proper investigation into the claim or ignoring evidence that supports coverage are hallmark examples of bad faith behavior.

Why It Matters

Carrier bad faith is more than an inconvenience. For property owners facing serious damage from events like fires, storms, or water leaks, a delayed or denied claim can have devastating financial consequences. The costs of repair, temporary housing, or business interruption can quickly add up. When insurers fail to act in good faith, policyholders may be left without the resources they counted on to recover. Recognizing bad faith is the first step in holding insurance companies accountable and ensuring they fulfill their obligations.

How to Spot It

Identifying bad faith requires vigilance. Property owners should start by carefully reviewing their policy to understand what is and isn’t covered. If an insurer provides a denial letter, it should clearly reference policy language and explain the reasoning. Vague or evasive explanations are a red flag. Tracking communication is also key—keep records of phone calls, emails, and letters. If the insurer consistently fails to respond within reasonable timeframes or keeps shifting the requirements for documentation, these may be signs of bad faith. Similarly, if the settlement offer is far below repair estimates or ignores significant parts of the damage, it’s worth questioning the insurer’s motives.

What You Can Do

If you suspect bad faith, you don’t have to accept it. Start by escalating the matter within the insurance company and requesting a written explanation for any decisions. Document everything, from adjuster visits to payment delays. In many cases, consulting with an attorney like Averill & Reaney who specializes in insurance bad faith can be the most effective way to protect your rights. Legal remedies may include not only payment of the claim itself but also additional damages to compensate for the insurer’s misconduct.

Final Thoughts

Insurance should provide a safety net during life’s most challenging moments, not add to the burden. Carrier bad faith undermines the very purpose of insurance by putting profits above policyholders. By learning how to recognize unfair practices—such as wrongful denials, unreasonable delays, misrepresentation, and lowball offers—property owners can take proactive steps to safeguard themselves. If you believe your insurer is acting in bad faith, seeking legal guidance can ensure your rights are protected and that you receive the coverage you’ve paid for.

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