Insurance Bad Faith Explained: What Homeowners Should Know

The term “bad faith” gets used a lot in insurance claims.

Most homeowners think:

👉 “The insurance company didn’t do what I wanted, so it must be bad faith.”

That’s not how it works.

Bad faith has a specific meaning, and not every disagreement or denial qualifies.

Understanding the difference is important before assuming a claim is being handled improperly.

What Bad Faith Actually Means

In simple terms, bad faith means:

👉 the insurance company is not handling your claim fairly or properly under the policy and applicable regulations

This can involve:

• unreasonable delays
• failure to communicate
• failure to investigate properly
• denying a claim without clear justification
• underpaying without explanation

But it must go beyond just a disagreement.

What Is NOT Considered Bad Faith

This is where most confusion happens.

The following situations are NOT automatically bad faith:

• a low estimate
• a claim denial you disagree with
• a difference of opinion on scope
• delays caused by inspections or documentation

These are often part of the normal insurance adjustment process.

Bad faith requires something more than just:

👉 “I don’t agree with the outcome”

Common Examples of Bad Faith Behavior

While every state has its own rules, common examples include:

Unreasonable Delays

If the insurance company:

• fails to respond within required timeframes
• does not acknowledge the claim
• repeatedly delays decisions without reason

This may be considered bad faith depending on the situation.

Failure to Properly Investigate

The insurance company must:

• inspect the damage
• review documentation
• evaluate the loss

If they ignore evidence or fail to investigate properly, it can become a problem.

Lack of Communication

Insurance companies are expected to:

• respond to reasonable inquiries
• provide updates
• explain decisions

Ignoring communication over extended periods can raise concerns.

Denial Without Clear Explanation

If a claim is denied:

👉 it should be supported by policy language and reasoning

If that explanation is missing or unclear, it can become an issue.

Underpayment Without Justification

If the claim is paid:

👉 the estimate should support the amount

If the numbers do not align with the damage and no explanation is given, it may raise questions.

This is often tied to how insurance claim estimates are written.

Why State Rules Matter

Bad faith is not identical in every state.

Each state has its own:

• regulations
• timelines
• handling requirements

For example:

• some states require acknowledgment within a certain number of days
• others require responses within specific timeframes

This is where regulatory bodies like the Department of Financial Services come into play.

Why Bad Faith Is Often Misunderstood

Most homeowners associate bad faith with:

👉 frustration

But frustration and bad faith are not the same.

A claim can feel:

• slow
• confusing
• unfair

…and still not meet the legal definition of bad faith.

That’s why understanding how to handle a claim dispute is important before assuming bad faith.

When a Situation May Escalate

If a claim truly involves bad faith behavior, the situation may escalate beyond the normal claims process.

This can involve:

• regulatory complaints
• formal disputes
• or in some cases, legal action

This is where understanding appraisal vs litigation becomes important.

What Homeowners Should Focus On

Before assuming bad faith, focus on:

• documenting communication
• keeping records of delays
• reviewing estimates carefully
• understanding policy coverage

Strong documentation is what separates:

👉 a disagreement
from
👉 a legitimate issue

Final Thought

Bad faith is not about disagreement.

It is about whether the insurance company is handling your claim properly under the policy and applicable regulations.

Understanding that difference helps homeowners avoid unnecessary frustration and focus on the right next step.

If you still have questions about your claim, visit our Homeowners Insurance Claim FAQs page for quick answers and links to detailed guides.

Learn More At ClaimHelpMe.com

This page explains the basics of how this part of the insurance claim process works.

However, inside ClaimHelpMe.com, homeowners can access real repair estimates, detailed examples, and step-by-step explanations showing how claims are documented, evaluated, and presented to insurance carriers.

The free content explains the fundamentals.
The ClaimHelpMe platform shows how the process actually works.

Explore more homeowner insurance claim guides in our Claim Guides section.

About the Author

Mark Grossman is a Licensed Public Adjuster and NASCLA Certified Contractor with 28 years in the restoration insurance industry and 35 years in construction.

Learn more → Mark Grossman