Last reviewed: 15 September 2026

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What "bad faith" on an insurance claim actually means, legally

This page isn't a rating of any specific insurance company's claims practices — see our standard for why we deliberately don't publish one. "Bad faith" also gets used loosely in everyday conversation to mean almost any claim denial someone disagreed with. It's actually a specific legal concept, built on a real regulatory floor most people never look up.

The regulatory floor: the Unfair Claims Settlement Practices Act

The NAIC's Unfair Claims Settlement Practices Act (Model #900), adopted in some form in most states, sets minimum standards for how an insurer has to investigate and handle a claim. Its prohibited practices generally fall into a few core categories: knowingly misrepresenting a policy's relevant facts or provisions to a claimant; failing to adopt and implement reasonable standards for the prompt investigation of claims; failing to acknowledge or act on pertinent claim communications with reasonable promptness; and refusing to pay a claim without having conducted a reasonable investigation first. It's enforced primarily by the state insurance commissioner through the same kind of regulatory action our disciplinary-search guide describes for producers — not, in most states, a statute a policyholder can sue directly under.

Most states don't let you sue directly under this Act — but that's not the end of it

Only a minority of states — commonly cited as around ten — give a policyholder a direct private right of action for a violation of their state's Unfair Claims Settlement Practices Act itself; in most states, enforcement is reserved to the insurance commissioner. That doesn't mean a policyholder has no separate recourse: most states independently recognize a common-law "bad faith" claim — typically framed as a breach of the insurer's implied duty of good faith and fair dealing, existing apart from the Act — and a documented violation of the Act's standards can still be used as evidence supporting that separate claim, even where the Act itself doesn't create a direct lawsuit. Exactly how this works, and what it takes to prove, is genuinely state-specific and a question for an attorney licensed in the relevant state, not something a general explainer like this one can resolve for your specific situation.

Where this connects to the producer who sold you the policy — and where it doesn't

The claims-handling rules above govern the insurer and the adjuster actually handling your claim (see our companion piece on the three types of claims adjuster) — not the agent or broker who originally sold you the policy. A producer misrepresenting what a policy covers at the point of sale is a separate, distinct problem, checked under point 6 of our standard and covered in our guide to filing a complaint against an agent; it's worth not conflating a producer's marketing conduct at the time of sale with an insurer's claims-handling conduct after a loss, since they're governed by different rules and, generally, different regulators inside the same Department of Insurance.

What to actually do if you think a claim was mishandled

File a complaint with your state Department of Insurance either way (see our complaint-filing guide for the mechanics, which apply to a claims-handling complaint as well as a producer-conduct one), and keep a written, dated record of every communication about the claim. If you're considering an actual bad-faith lawsuit rather than a regulatory complaint, that's a matter for your own attorney — a legal cause of action against an insurer, not something a complaint form by itself resolves.