Every policyholder deserves fair treatment, and the law exists to protect those rights.
A promise of insurance
When people buy insurance, they are paying for peace of mind and security, in that consumers are expected to get coverage when they pay premiums and follow policy rules. The promise is simple, if something goes wrong, the insurance company will step in and honor the policy. Unfortunately, for many consumers, this is not the case and ultimately they are left with little or no coverage when they need it most. As personal injury lawyers and co-founders of Spetsas Buist, our goal is to ensure that the public is well-educated about their rights as policyholders.
There are many individuals and families who did everything right, paid their premiums on time, followed their policy, and still ended up fighting their insurance company. According to a February 2025 report, insurance fraud is not rare, with claims handling issues accounting for 62.5 percent of all insurance complaints filed in 2024, with delays and unsatisfactory settlements among the most common problems faced by policyholders.
What is bad faith insurance?
Insurance companies that fail to fulfill their legal duty to act fairly, honestly and in good faith towards their policyholder are said to be acting in bad faith. Common examples of this are denying a valid claim without justification, ignoring evidence, dragging out the claim process, or offering a settlement significantly lower than the actual value of the claim.
These tactics are not accidental. Many are the result of internal cost-containment strategies that prioritize minimizing payments, even when coverage is clearly applicable. By doing so, insurers place the financial burden on policyholders who are already navigating stressful and vulnerable situations.
It is important to know the difference between a simple denial of claim and a bad faith claim because it will dictate whether you can sue for additional damages such as attorney fees, consequential and punitive damages. A simple claim denial is a contractual dispute based on policy language that involves a valid or incorrect interpretation of a policy exclusion. A bad faith claim differs because it is based on an unreasonable, dishonest or negligent refusal to pay the claim, which violates the insurer’s duty of good faith.
First-Party vs. Third-Party Bad Faith Claims
Both first-party and third-party bad faith claims are unconscionable conduct, but the difference is who owns the policy. First-party bad faith claims involve an insurer breaching its duty of good faith to its policyholder by denying a valid claim, while third-party bad faith claims expose the insurer to personal liability by failing to properly settle or defend a claim against its insured.
For example, a first-party bad faith claim occurs when an insurance company treats its own customer unfairly, such as denying a claim without a reasonable investigation, failing to provide a reason for the denial, or unreasonably delaying payment. A third-party bad faith claim occurs when an insurance company improperly handles another’s claim, such as refusing to settle a case within policy limits, failing to defend the policyholder against a lawsuit, or misrepresenting the terms of the policy to an injured third party.
Knowing the difference between first-party and third-party bad faith claims helps you recognize when the insurance company may have crossed the line. Whether it’s unfairly denying your own claim or failing to properly handle someone else’s claim, these protections exist to hold insurers accountable for how they treat people.
Warning signs that consumers should watch for
Consumers should look for several important red flags that indicate an insurer is not acting in good faith, and here are a few key warning signs:
Unreasonable or excessive delay – The insurer takes too long to process the claim, fails to provide updates, or deliberately stalls, hoping the policyholder will give up or accept a lower settlement.
Refused without explanation – A claim is rejected without a valid, clear, or written reason. The explanation given may be vague, inconsistent or illogical.
Low ball settlement offers – Offering a settlement that is significantly less than the original value of the claim, often due to financial pressures, puts pressure on the policyholder to accept immediately.
Misrepresentation of policy terms – Willfully misinterpreting policy language, ignoring clear terms of coverage, or lying about coverage to avoid payment.
When these warning signs appear, policyholders should understand that they are not powerless, and that the insurer’s conduct may exceed bad faith.
How to protect yourself
If you recognize any of these signs and suspect your insurance company is acting in bad faith, there are some steps you can take to ensure you are protected.
Always document everything. Keep a running record of all communications, including dates, names and summaries of conversations. Try to follow up with phone calls or emails to make sure you have these communications in writing. Another way to protect yourself is to understand your coverage to identify when the insurer is misrepresenting it. If your insurer is uncooperative, don’t sign any releases or accept any lowball offers without first reviewing your policy or consulting with an attorney.
Ultimately, protecting yourself comes down to being informed, proactive and careful throughout the claims process. Insurance companies have teams of adjusters and attorneys working on their behalf, and policyholders deserve the same level of advocacy. When an insurer refuses to act fairly or honor its obligations, seeking experienced legal guidance can be an important step in protecting your rights and ensuring that you receive the benefits you are entitled to under the policy.
As lawyers who have seen insurers push profits over people, we know how important it is for policyholders to assert their rights. At Spetsas Buist, we fight to hold insurers accountable and ensure clients receive the coverage they are owed. Every policyholder deserves fair treatment, and the law exists to protect those rights.
