bad faith insurance letter

September 12, 2023

Crafting an Effective Bad Faith Insurance Letter: Tips and Templates 

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In the complex world of insurance, understanding the nuances of terms and practices is crucial. One such term that often surfaces, especially when disputes arise, is “bad faith.” At its core, a bad faith insurance letter serves as a formal communication between the policyholder and the insurance company, highlighting perceived unfair treatment or denial of a legitimate claim. Such letters are not just about airing grievances; they’re about seeking resolution and ensuring that policyholders get the justice and coverage they deserve. In this article, we’ll delve deep into the concept of bad faith in insurance, its types, and how to craft an effective letter to address it. Whether you’re a policyholder feeling wronged or someone looking to understand the intricacies of insurance practices, this guide will offer valuable insights.

What Does Bad Faith Mean in Insurance?

Insurance is built on a foundation of trust. Policyholders pay premiums with the expectation that when the unforeseen happens, their insurance company will be there to support them. However, there are instances where this trust is breached, leading to what is termed as “bad faith.” Bad faith in insurance refers to the unfair or unreasonable denial of a claim or delay in claim processing by an insurance company. It’s not just about a simple disagreement over claim amounts or interpretations of policy terms. Instead, it’s when the insurer acts dishonestly, evasively, or without a valid reason, leaving the policyholder feeling cheated or wronged. For instance, if an insurance company denies a claim without conducting a proper investigation or if it deliberately misinterprets policy language to avoid paying a legitimate claim, it’s acting in bad faith. Such actions not only harm the policyholder financially but also erode the very essence of the insurance contract: mutual trust and protection.

The Difference Between Good Faith and Bad Faith

Understanding the distinction between good faith and bad faith is pivotal when navigating insurance matters. Both terms are foundational in the insurance industry, but they represent opposite ends of the spectrum in terms of insurer conduct.

Good Faith

This is the cornerstone of all insurance contracts. When an insurer operates in good faith, it means they are acting honestly, fairly, and with the best interests of the policyholder in mind. It’s about upholding the promises made in the insurance policy and ensuring that claims are processed promptly and accurately. Good faith is evident when an insurance company communicates transparently, conducts thorough investigations, and pays out legitimate claims without unnecessary delays.

Bad Faith

As previously discussed, bad faith arises when an insurance company acts dishonestly or unreasonably in handling a claim. It’s more than just an error or oversight; it’s a deliberate act or a significant negligence that goes against the terms of the insurance contract or the rights of the policyholder. Examples include unreasonable delays in claim processing, denying claims without a valid reason, or offering significantly less money than what the claim is worth. In essence, while good faith is about upholding trust and fulfilling obligations, bad faith represents a breach of that trust, leading to potential legal consequences for the insurer.

What is Considered Bad Faith?

The realm of insurance is vast, and while the term “bad faith” might seem straightforward, its manifestations can vary. It’s essential to recognize the signs of bad faith to ensure that you, as a policyholder, are not being taken advantage of. Here are some common scenarios that are typically considered bad faith:

  • Unwarranted Denial of a Claim: If an insurance company denies a claim without a valid reason or without conducting a thorough investigation, it’s a clear sign of bad faith. Every policyholder deserves a fair assessment of their claim.
  • Delay in Claim Processing: Time is often of the essence when dealing with insurance claims. Unreasonable delays, especially without proper communication, can be detrimental to the policyholder and are indicative of bad faith.
  • Lowball Settlement Offers: Offering a settlement amount that is significantly lower than what the claim is genuinely worth, especially without a valid justification, is another sign. It’s an attempt to make the policyholder settle for less than they deserve.
  • Misrepresentation of Policy Terms: Deliberately misinterpreting or misrepresenting the terms and conditions of the policy to avoid paying a claim is a severe form of bad faith.
  • Failure to Communicate: An insurance company that fails to communicate crucial information or doesn’t respond to inquiries and concerns is not acting in the best interests of the policyholder.
  • Threatening the Policyholder: Any form of intimidation or threat, be it legal or otherwise, to deter a policyholder from pursuing a legitimate claim is a blatant act of bad faith.

Recognizing these signs is the first step in ensuring that your rights as a policyholder are protected. If you believe you’re a victim of bad faith, it’s essential to take action, starting with crafting a compelling bad faith insurance letter.

The Two Types of Bad Faith

When discussing bad faith in insurance, it’s essential to understand that it can manifest in two primary ways: first-party bad faith and third-party bad faith. Both types have distinct characteristics and implications for policyholders.

  • First-Party Bad Faith: This type of bad faith occurs directly between the insurance company and the policyholder. It involves the insurer’s refusal to pay a claim or offering a settlement amount that is unreasonably low. For instance, if you have a homeowner’s insurance policy and your house suffers damage from a covered event, but the insurance company denies your claim without a valid reason, it’s a case of first-party bad faith.
  • Third-Party Bad Faith: This involves a situation where a policyholder is sued by a third party, and the insurance company fails to defend the policyholder adequately or settle the claim within the policy limits. For example, if you’re involved in a car accident and the other party sues you, your auto insurance company has a duty to defend you. If they fail to do so or settle the claim for an amount exceeding your policy limits, leading you to incur out-of-pocket expenses, it’s a case of third-party bad faith.

Both types of bad faith can have significant financial and emotional repercussions for policyholders. It’s crucial to be aware of your rights and the obligations of your insurance company to ensure you’re treated fairly and justly.

Three Ways an Insurer Can Be Liable for Bad Faith

Insurance companies have a duty to act in good faith towards their policyholders. However, when they breach this duty, they can be held liable for bad faith. Here are three primary ways in which an insurer can be found liable:

  • Failure to Investigate: One of the fundamental duties of an insurance company is to conduct a thorough and unbiased investigation of any claim made by a policyholder. If the insurer fails to investigate or conducts a biased investigation to find reasons to deny the claim, it can be held liable for bad faith.
  • Unreasonable Denial or Delay: While insurance companies have the right to deny claims that are not valid, they cannot do so without a legitimate reason. Denying a claim without proper justification or causing unnecessary delays in claim processing can lead to bad faith liability.
  • Not Defending the Policyholder: In cases where a third party sues the policyholder, the insurance company has a duty to defend them, especially if the policy covers such scenarios. Failing to provide an adequate defense or not settling within policy limits can make the insurer liable for bad faith.

It’s essential for policyholders to be aware of these scenarios to ensure they receive the protection and coverage they’re entitled to. If any of these situations arise, crafting a well-structured bad faith insurance letter can be the first step towards resolution.

How to Demonstrate Bad Faith

Proving that an insurance company acted in bad faith is not always straightforward. It requires a combination of evidence, documentation, and sometimes legal expertise. Here’s how you can demonstrate bad faith:

  • Document Everything: From the moment you file a claim, keep a detailed record of all communications with the insurance company. This includes letters, emails, phone call logs, and any other correspondence. These documents can serve as evidence if the insurer’s actions or responses seem unreasonable or evasive.
  • Gather Evidence: If your claim involves property damage, medical expenses, or any other tangible losses, ensure you have photographs, medical records, repair estimates, and any other relevant documentation. This evidence can support your claim and highlight any discrepancies in the insurer’s assessment.
  • Seek Expert Opinions: In some cases, it might be beneficial to get an independent assessment. For instance, if your insurance company offers a lowball estimate for property damage, getting an independent appraisal can demonstrate the actual value of the loss.
  • Highlight Policy Terms: Familiarize yourself with your insurance policy’s terms and conditions. If the insurer denies a claim or offers a reduced settlement, cross-reference their reasoning with the policy’s provisions. Any inconsistencies can be used to demonstrate bad faith.
  • Consult with Legal Counsel: If you believe you’re a victim of bad faith, it might be wise to consult with an attorney specializing in insurance disputes. They can provide guidance, evaluate the strength of your case, and recommend the best course of action.

Remember, demonstrating bad faith requires a methodical approach. By being diligent, organized, and proactive, you can build a strong case against any unfair practices by your insurance company.

Crafting an Effective Bad Faith Insurance Letter

Addressing bad faith requires a strategic approach, and one of the most potent tools at your disposal is a well-crafted bad faith insurance letter. This letter serves as a formal communication to the insurance company, outlining your concerns and seeking resolution. Here’s a step-by-step guide to crafting an impactful letter:

  • Start with Formalities: Begin your letter with your name, address, policy number, and the date. Address the letter to the appropriate department or individual at the insurance company.
  • State the Purpose: Clearly mention that the letter is concerning a bad faith action by the insurance company. This sets the tone and context for the rest of the letter.
  • Detail the Claim: Provide a concise overview of your claim, including the date of the incident, the nature of the claim, and any relevant claim numbers.
  • Outline the Issues: Clearly state the reasons you believe the insurance company acted in bad faith. This could be an unwarranted denial, a lowball offer, delays, or any other concerns. Reference any supporting evidence or documentation you have.
  • State Your Expectations: Clearly mention what you expect from the insurance company, whether it’s a re-evaluation of the claim, a fair settlement offer, or any other resolution.
  • Include a Deadline: Give the insurance company a reasonable deadline to respond or take corrective action. This shows that you’re serious about seeking resolution.
  • Mention Further Action: Indicate that if your concerns are not addressed by the deadline, you’re prepared to take further action, which could include legal proceedings.
  • End Formally: Conclude the letter with a formal closing, your signature, and contact information.
  • Send via Certified Mail: Ensure you send the letter via certified mail with a return receipt. This provides proof that the insurance company received your letter.

Remember, the goal of the bad faith insurance letter is not just to air grievances but to seek a fair and just resolution. Be clear, concise, and assertive in your communication, ensuring that your concerns are heard and addressed.


What is a bad faith insurance claim?

A bad faith insurance claim arises when an insurance company fails to fulfill its obligations to a policyholder, either by denying a legitimate claim without a valid reason, delaying claim processing unnecessarily, or not acting in the best interest of the policyholder.

How can I prove that my insurance company acted in bad faith?

Proving bad faith requires documenting all interactions with the insurance company, gathering evidence related to the claim (like photos, medical records, or repair estimates), highlighting inconsistencies in the insurer’s reasoning with the policy terms, and consulting with legal experts if necessary.

Can I sue my insurance company for bad faith?

Yes, if an insurance company acts in bad faith, policyholders have the right to sue them for damages. This can include the amount of the claim, legal fees, and in some cases, additional punitive damages.

What’s the difference between first-party and third-party bad faith?

First-party bad faith occurs directly between the insurance company and the policyholder, typically involving refusal to pay a claim or offering a low settlement. Third-party bad faith involves a situation where a policyholder is sued by another party, and the insurance company fails to defend the policyholder adequately or settle within policy limits.

How long do I have to file a bad faith claim against my insurance company?

The time limit, or statute of limitations, for filing a bad faith claim varies by state. It’s essential to consult with a legal expert in your jurisdiction to understand the specific time frame applicable to your situation.


Navigating the intricacies of insurance can be challenging, especially when faced with potential bad faith actions by an insurer. However, armed with knowledge and the right tools, policyholders can ensure they’re treated fairly and receive the coverage they deserve. Crafting a compelling bad faith insurance letter is a vital step in addressing any unfair practices and seeking resolution. If you ever find yourself in a situation where you believe your insurance company is not acting in your best interests, remember that you’re not alone. Reach out for assistance, whether it’s legal counsel or simply seeking guidance on the next steps. At Callender Bowlin, we’re committed to ensuring that policyholders are treated justly and receive the protection they’re entitled to. For any questions or concerns, don’t hesitate to contact us at (713) 364-1128. Your peace of mind is our top priority.