When an Insurance Company Denies a Personal Injury Claim in "Bad Faith"

What to do when your insurer fails to live up to its legal obligation to act in good faith.

Most injury settlements follow a fairly predictable path toward fair resolution, maybe with a few bumps along the way. But in some rare cases, the insurance company -- yours or the other side's -- fails to live up to its legal obligation to negotiate in good faith. What does it mean when an insurer acts in "bad faith," and how should you proceed in such a case?      

The Concept of “Bad Faith”

Key phrases commonly used in the insurance industry sometimes make adjusters sit up and take notice. When you are negotiating a settlement with your own insurance company -- as part of your uninsured or underinsured motorist coverage, for example -- “bad faith” can be one such phrase.

Because your policy is a paid-for promise by your insurance company to provide you with insurance protection, the company has a duty to provide that protection and to negotiate and settle claims in good faith.

Insurance companies for third parties also have a duty of good faith toward an injured person, but that duty is much less than the duty owed by your own company. A claim of bad faith against a third party’s insurance company arises only if the company, through its adjuster, has engaged in outright lies or fraud or has interfered with your ability to pursue the claim (such as by tampering with a witness, withholding evidence, or the like). If you believe a third-party insurer has engaged in such outrageous behavior, contact your state’s insurance department and an experienced personal injury attorney.

What Is (and Isn't) Bad Faith?

An adjuster for your own insurance company is not negotiating in bad faith just because you and the adjuster have a difference of opinion about how much your claim is worth. However, bad faith may exist if the adjuster for your own company has refused to give you any specific reasons for a very low settlement offer or has said or done something which might amount to improper settlement tactics.

What You Can Do

If you believe the adjuster for your company is negotiating in bad faith, use the term in conversation with the adjuster. If you get no satisfactory response, you may want to put your accusation of bad faith in writing. In a bad faith letter to the insurance company, specifically refer to the conduct of the adjuster that you believe amounts to bad faith. See the sample letter below to get an idea of what this letter might look like.

A written accusation of bad faith often gets prompt attention and, if justified, may rapidly provoke a change in the adjuster’s settlement position. If an insurance company is proved to have acted in bad faith, it may be liable to pay damages to the insured well above the injury compensation amount. The rules about what is and is not bad faith vary from state to state, and it is extremely difficult to win bad faith damages in court. Nonetheless, in settlement negotiations, the mere possibility of a fight over bad faith often can help nudge a reasonable settlement offer out of an insurance company.

Sample Letter Claiming Bad Faith

[Your name and address]


[Insurance company/adjuster's name and mailing address]

Re: [claim number, date of accident, etc.]

Dear [adjuster's name]:

This letter concerns the discussions you and I have had over the past several weeks concerning settlement of the uninsured motorist claim referenced above. You have made only one offer of settlement in the amount of $500. This offer bears no reasonable relationship to my injuries, since my medical expenses alone total $1,550. Yet you refuse to provide me with any explanation for your position.

The only conclusion I can come to is that Metropolitan Insurance Company is refusing to negotiate in good faith.

If no fair and reasonable settlement offer, or explanation for the lack of such offer, is made by July 1, 20xx, I will be forced to take further steps regarding Metropolitan’s apparent bad faith.

Yours truly,



This article is an excerpt from How to Win Your Personal Injury Claim by Attorney Joseph Matthews (Nolo).

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