Bad faith insurance practices happen when an insurance company treats you unfairly instead of honoring its promises. According to the National Association of Insurance Commissioners (NAIC), delays, denials, and unsatisfactory settlement offers are common reasons people file complaints against their insurers. Learning to spot these tactics early can protect your claim.
What You Should Know About Bad Faith Insurance Practices
Every insurance company has a legal duty to act in good faith. That means it must handle your claim fairly, investigate it honestly, and pay what it owes. When a company puts its own profits ahead of that duty, it may be acting in bad faith.
When you pay your premiums, your insurer promises to be there when you need it most. The law takes that promise seriously.
Bad faith is not the same as a slow email or an honest error. It happens when a company has no reasonable reason to deny or delay your claim and does it anyway. That is the difference between a company that dropped the ball and one that is treating you unfairly on purpose.
If you think that is happening to you, our bad faith insurance attorneys can review your situation.
What are Common Insurance Bad Faith Examples?
Insurance companies rarely admit they are acting in bad faith. Instead, they use tactics that look like normal business. Here are the most common ones, based on the practices named in the NAIC model law.
| Tactic | What It Looks Like |
|---|---|
| Unreasonable delay | Dragging out your claim with no clear reason |
| Lowball offers | Offering far less than your claim is worth |
| Failure to investigate | Denying your claim without a real review |
| Misrepresenting your policy | Twisting the words of your coverage against you |
| Poor communication | Ignoring your calls, letters, and emails |
| Denial without explanation | Rejecting your claim with no clear reason why |
If you have run into more than one of these, you may be dealing with bad faith insurance practices. Our guide to common insurance dispute tactics breaks down how each of these plays out in a real claim.
What is the Difference Between First-Party and Third-Party Bad Faith?
Not every bad faith claim looks the same. The law splits them into two types, and the difference matters for how you fight back.
First-Party Bad Faith
This is when your own insurer mishandles your claim. A common example is a homeowner whose fire claim is denied without reason.
Third-Party Bad Faith
This happens when your insurer fails to settle a claim against you within your policy limits. If that failure leaves you owing money out of your own pocket after a lawsuit, your insurer may be on the hook.
Why the Difference Matters
The type of claim affects who can sue and when. In Alabama, an injured stranger usually cannot sue your insurer for bad faith until a court enters a judgment. Knowing which category your case falls into is the first step toward holding a company accountable.
How Alabama Handles Bad Faith Insurance Claims
The United States considers “bad faith” a crime nationwide. However, each state has its own set of rules. As an Alabama-based firm, here is how our home state treats these claims.
Alabama Treats Bad Faith as a Tort
The Alabama Supreme Court first recognized bad faith refusal to pay a claim in 1981. This was in Chavers v. National Security Fire & Casualty Co. A year later, in National Security Fire & Casualty Co. v. Bowen (1982), the court laid out what you must prove. Primarily, you must prove that your insurer had no legitimate or arguable reason to deny your claim.
Under Ala. Code § 27-12-24, no insurer may refuse to pay or settle valid claims without just cause when it does so as a general business practice.
Because bad faith is a tort, Alabama gives you only two years to file under Ala. Code § 6-2-38. Miss that window, and you may lose the right to recover anything.
Alexander Shunnarah Trial Attorneys has offices nationwide, including Hawaii and New York. Regardless of where you live, we have the skills and resources to help you fight a “bad faith” claim.
Common Questions About Bad Faith Insurance
What are bad faith insurance practices?
Bad faith insurance practices are actions an insurer takes when it fails to treat you fairly and honor your policy. Common examples include long delays, low settlement offers, and denials without reason. The NAIC model law lists these and other prohibited practices that most states follow.
How do I prove bad faith insurance?
In Alabama, you generally must show that a valid insurance contract existed and that the insurer refused to pay. You must also prove that the insurer had no legitimate or arguable reason to refuse. The standard comes from National Security Fire & Casualty Co. v. Bowen (1982). If your claim was even “fairly debatable,” a court may find the denial was not bad faith, which is why the details matter.
Can I sue my insurance company for bad faith insurance practices?
Yes. If your insurer denied, delayed, or underpaid a valid claim without a good reason, you may be able to file a claim. In Alabama, bad faith is a recognized tort, meaning you can seek both compensatory and punitive damages. An attorney can review your policy and your insurer’s conduct to see if you have a case.
What is the penalty for bad faith insurance?
Penalties vary by state. State insurance regulators can fine companies and even suspend their licenses for a pattern of unfair claims practices. On top of that, a policyholder can sue directly and recover damages. This can include punitive damages that punish the insurer.
How long do I have to file a bad faith insurance claim in Alabama?
You have two years from the date the bad faith occurred, under Ala. Code § 6-2-38. The related breach-of-contract claim may allow more time, but you should not wait. Talking to an attorney quickly protects your rights.
What is the difference between a claim denial and bad faith?
A denial by itself is not bad faith. Insurers are allowed to deny claims they have a real, reasonable basis to question. It becomes bad faith when the company has no legitimate reason to deny or delay and does so anyway. The key is whether the insurer acted honestly and investigated your claim in good faith.
Trust Alexander Shunnarah Trial Attorneys Today
For decades, we have stood up to insurance companies that put profits ahead of the people they promised to protect. If your insurer is delaying, denying, or lowballing a valid claim, you do not have to fight them alone. Schedule a free case review today.
Reviewed by Alexander Shunnarah, Attorney and Chief Executive Officer at Alexander Shunnarah Trial Attorneys on 2026-07-15.
