Bad Faith Claim

When the Carrier Stops Playing Fair

A bad faith claim is a legal action alleging that the insurance carrier unreasonably denied, delayed, or underpaid a valid insurance claim, violating its contractual and statutory duty to act honestly toward the policyholder. Bad faith is not about a disagreement over a few line items. It means the carrier violated its legal obligation to handle the claim promptly and in good faith, under most state insurance regulations.

The threshold varies by state, but the underlying principle is the same everywhere: insurance companies have a duty to act in good faith toward their policyholders. When they violate that duty, the homeowner has legal recourse beyond the original claim value.

Common Triggers That Cross the Line

Not every low estimate is bad faith, but patterns of behavior add up. Individual triggers that attorneys look for include:

• Ignoring submitted documentation and photos
• Applying fabricated or unsupported depreciation rates
• Refusing to pay O&P when the three-trade rule clearly applies
• Missing legally required response deadlines
• Denying coverage without investigating the claim
• Changing the reason for denial after the original reason is disproven
• Refusing to communicate with the policyholder or their representatives

One of these in isolation is sometimes an honest mistake. Multiple triggers on the same claim start to look like a pattern. Document everything.

What Bad Faith Can Cost the Carrier

Bad faith damages go well beyond the original claim value. Depending on the state, a successful bad faith action can result in:

Recovery Type	What It Covers
Original claim amount	The full value the carrier should have paid
Consequential damages	Additional costs caused by the delay or denial
Attorney fees	Policyholder's legal costs
Statutory penalties	State-specific multipliers or fixed penalties
Punitive damages	Available in some states for egregious conduct

This is why carriers take bad faith allegations seriously. A $15,000 roofing claim can turn into a six-figure liability when attorney fees, consequential damages, and penalties stack up.

The Contractor's Role in Bad Faith Situations

You are not filing the bad faith claim - the homeowner and their attorney are. But you are often the one who spots the pattern first. When a denied claim has solid documentation, the supplement was thorough, the appraisal clause has been exhausted, and the carrier still will not budge, it is time to recommend the homeowner consult an insurance attorney. Your job is to maintain clean records: every email, every phone call log, every submitted document with timestamps. That paper trail is what the attorney builds the case on.