Bad Faith Insurance Claims: When the Carrier Refuses to Pay What It Owes

Bad faith law is largely state law. The available causes of action, procedural prerequisites, proof standards, and damages vary across jurisdictions. The following are the most-cited frameworks in U.S. personal injury and insurance practice.

Florida (Fla. Stat. § 624.155)

Florida statutory bad faith requires a Civil Remedy Notice (CRN) filed with the Florida Department of Financial Services and served on the carrier. The carrier has a 60-day cure period to investigate, evaluate, and pay the claim or make a reasonable settlement offer. HB 837 (eff. March 24, 2023) raised the proof bar from mere negligence to bad faith under the totality of the circumstances and introduced comparative bad faith. Common-law third-party bad faith under Boston Old Colony survives the reform.

Texas (Insurance Code Ch. 541 and Ch. 542; Stowers)

Texas bad faith runs on three tracks: common-law Stowers (third-party duty to settle within limits, from G.A. Stowers Furniture Co. v. American Indemnity Co.), the Texas Insurance Code Chapter 541 (deceptive insurance practices), and the Prompt Payment of Claims Act under Chapter 542 with statutory interest and attorney fees. Pre-suit notice under § 541.154 is required. Limitations is generally two years from when the violation should have been discovered.

California (UCSPA + Common Law)

California recognizes both statutory unfair claims settlement practices conduct (Cal. Ins. Code § 790.03(h)) and common-law breach of the implied covenant of good faith and fair dealing. The California Supreme Court established the duty to settle within limits in Crisci v. Security Insurance Co., 66 Cal. 2d 425 (1967). Compensatory and, in qualifying cases, punitive damages are available.

Georgia (O.C.G.A. § 33-4-6)

Georgia statutory bad faith allows a 50% penalty on top of the policy benefits plus reasonable attorney fees when the carrier acts in bad faith on a first-party claim. The claimant must give a 60-day demand before suit. Georgia also recognizes common-law bad faith on the third-party side.

Illinois (215 ILCS 5/155)

The Illinois "vexatious refusal" statute permits attorney fees and a penalty up to 60% of the unpaid claim (capped) when the carrier's refusal to pay is vexatious and unreasonable. The statute is the primary vehicle for first-party bad faith in Illinois.

Washington (Insurance Fair Conduct Act)

The Washington Insurance Fair Conduct Act (RCW 48.30.015) gives first-party claimants a private right of action for unreasonable claim denial, with treble damages available and attorney fees recoverable. A 20-day pre-suit notice to the carrier and the Office of the Insurance Commissioner is required.

Massachusetts (Chapter 93A and 176D)

Massachusetts bad faith runs through M.G.L. c. 93A in conjunction with c. 176D's unfair claims settlement practices. A 30-day pre-suit demand letter is required. Damages can be doubled or trebled when the violation is willful or knowing, plus attorney fees.

Other States and the Common-Law Backstop

Most other states recognize bad faith through some combination of an Unfair Claims Settlement Practices Act (modeled on the NAIC Model Act) and common-law breach of the implied covenant of good faith and fair dealing. New York operates primarily through GBL § 349 and Ins. Law § 2601. Pennsylvania's bad faith statute (42 Pa.C.S. § 8371) allows interest, costs, and punitive damages. Some states (Virginia among the most notable) significantly limit private bad faith remedies. Refer your specific case to local counsel for the framework that applies.

Most insurance adjusters operate within the scope of good-faith claims handling. They negotiate hard, but they investigate properly and pay legitimate claims. Some carriers cross the line. The following patterns are documented bases for bad faith liability across most jurisdictions.

Failure to Investigate

• Refusal to Take Statements: The carrier ignores witnesses, fails to obtain the police report, or refuses to inspect the scene
• Cherry-Picked Records: The adjuster pulls only records that support the carrier's position and ignores treating physician opinions
• No Reasonable Timeline: The investigation drags on for months without justification while the claimant goes without payment

Failure to Settle Within Policy Limits

When liability is reasonably clear and damages plainly exceed policy limits, the carrier has a duty to accept a reasonable demand within those limits. Refusal exposes the insured to an excess judgment and exposes the carrier to bad faith. Time-limit demand letters (Stowers demands in Texas, Cunningham demands in Florida) are the documentary trigger.

Refusal to Disclose Policy Limits

Many states require carriers to disclose policy limits on demand once liability is clear. Refusal can support both a bad faith claim and a discovery sanction.

Misrepresentation of Coverage

Telling the insured that a covered claim is not covered, that an exclusion applies when it does not, or that a deadline has passed when it has not, are all documented bad faith patterns under most state Unfair Claims Settlement Practices Acts.

Lowball Offers Without Explanation

An offer well below documented damages, with no rational basis tied to liability disputes, coverage issues, or causation defenses, can support bad faith. The carrier's evaluation must be reasonable on its face.

Unreasonable Delay

Most state statutes set timelines for acknowledgment, investigation, and payment of claims. Repeated delay without justification, demands for documentation already provided, or shifting demands for additional proof can amount to bad faith.