Bad Faith Insurance Claims: What They Are and What You Can Do About It
Your insurer denied your claim — or paid a fraction of what the damage actually cost. Now you're wondering whether they played fair, or whether they crossed a legal line. That question is exactly what a bad faith insurance claim comes down to. This guide explains what bad faith means, how to recognize it, and what steps you can take on your own before you decide whether to involve a professional.
What Is a Bad Faith Insurance Claim?
When you buy a homeowners policy, both sides take on obligations. You pay premiums and report claims honestly. Your insurer agrees to investigate promptly, communicate clearly, and pay what's legitimately owed under the policy. Bad faith is what happens when an insurer deliberately fails that second half of the deal — not because of an honest disagreement over the facts, but because of unreasonable conduct that puts the company's interests ahead of yours.
Legally, insurers owe policyholders what courts often call an "implied covenant of good faith and fair dealing." That phrase means the company can't act in a way that defeats the reasonable purpose of the contract — which is to make you whole after a covered loss. When an insurer crosses that line, it may have committed bad faith, opening the door to remedies beyond just the original claim amount. Exactly what those remedies look like depends heavily on your state's law, so verify the specifics with your state Department of Insurance or a licensed attorney.
Bad Faith vs. a Simple Dispute: Understanding the Difference
Not every denied or underpaid claim is bad faith. Insurers are allowed to investigate, ask questions, and disagree with your estimate. An adjuster who genuinely believes your roof leak is excluded under wear-and-tear isn't necessarily acting in bad faith — even if you think they're wrong. The distinction comes down to whether the insurer acted reasonably and honestly, or whether they had no legitimate basis for their position and knew it.
A simple coverage dispute — one you can challenge through a formal appeal or the appraisal clause (more on both below) — is different from a pattern of stalling, misrepresentation, or outright refusal to engage. If you suspect bad faith, it helps to document everything before you decide how to escalate.
Common Signs of Bad Faith Conduct
Bad faith can take many forms. The following patterns appear frequently in consumer complaints and regulatory enforcement actions — but keep in mind that a single instance of slow communication doesn't automatically prove bad faith. Look for a pattern, and document each incident with dates and specifics.
- Unreasonable delays — weeks or months pass with no substantive update, no explanation, and no request for additional information that would justify the wait.
- Denial without explanation — the insurer denies the claim but won't point to the specific policy language that supports the denial.
- Lowball offers with no supporting estimate — a settlement offer arrives that covers only a small fraction of documented damage, with no independent estimate or itemized breakdown explaining the number.
- Refusing to acknowledge or respond to correspondence — you send letters, emails, or formal appeals and get silence.
- Misrepresenting policy terms — an adjuster tells you something isn't covered when the policy language says otherwise, or describes your coverage inaccurately.
- Changing the reason for denial — the insurer gives one reason for denial, you address it, and then a new reason appears. This "moving goalposts" pattern is a common red flag.
- Failure to conduct a reasonable investigation — the insurer denies before physically inspecting the damage, relies entirely on a report you weren't shown, or ignores your contractor's documentation.
What You Can Do First — Without Hiring Anyone
Before you spend money on a public adjuster or attorney, there are concrete steps you can take yourself. These aren't just consolation actions — they create the paper trail that any professional would build anyway, and they sometimes resolve the dispute outright.
Step 1: Pull Your Policy and Read the Denial Letter Side by Side
Your denial letter (the written explanation your insurer is required to provide) must cite a reason. Match that reason to your declarations page — the summary sheet that lists your coverage types, limits, and deductibles — and to the full policy language. If the reason doesn't hold up against the actual text, note the exact page and section. That discrepancy is the foundation of your appeal.
Step 2: Document Every Contact and Every Delay
Create a running log: date, time, who you spoke with, what was said, and what was promised. Save every email. If you have phone calls, follow up in writing — "Per our call today, you confirmed that an inspector will visit by [date]" — so there's a written record even if the insurer doesn't produce one. This log becomes your evidence if you later file a regulatory complaint or pursue legal action.
Step 3: Gather Independent Documentation of the Damage
Get a written estimate from a licensed contractor — ideally one who can itemize materials, labor, and scope of work. Photograph everything before any repairs. If you've already made emergency repairs (a tarp over the roof, for example), photograph those too and keep every receipt. The goal is evidence that doesn't rely on the insurer's own adjuster.
Step 4: Submit a Formal Written Appeal
Most policies have an internal appeal process. Submit your appeal in writing — certified mail gives you a delivery receipt — and include your contractor's estimate, your photos, the specific policy language you're relying on, and a clear statement of why you believe the denial or underpayment is incorrect. Keep the tone factual. An appeal letter that lays out dates, evidence, and policy citations is far more effective than one that focuses on frustration.
Step 5: Request the Appraisal Clause If the Dispute Is About the Dollar Amount
The appraisal clause is a provision in many homeowners policies that lets each side hire an independent appraiser to assess the loss. The two appraisers then agree on an umpire; if they can't agree on value, the umpire decides. This process bypasses the adjuster entirely and can be particularly useful when the insurer accepts the claim in principle but offers far less than the damage costs. Check your policy for the exact language and any deadlines — the window to invoke appraisal is often limited and varies by policy and state. Verify current rules with your state Department of Insurance.
Filing a Department of Insurance Complaint
Every state has a Department of Insurance/DOI that regulates insurer conduct. Filing a complaint costs nothing and puts the insurer on notice that their handling of your claim is under official scrutiny. Some complaints resolve quickly because the insurer doesn't want a regulatory finding against them. The DOI won't negotiate your settlement, but they can investigate whether the insurer violated state claims-handling regulations — and those regulations often define what counts as bad faith in that state.
To file: go directly to your state's DOI website (search your state name plus "Department of Insurance"), find their consumer complaint portal, and attach your documentation — the denial letter, your policy, your appeal correspondence, and your contact log. Be factual and specific about dates and conduct, not just the outcome you want.
ACV vs. RCV — and Why It Matters for Bad Faith
One of the most common sources of underpayment isn't outright denial — it's how the insurer values the damage. Two terms you need to understand:
- ACV (Actual Cash Value) — what the damaged property is worth today, after depreciation. If your 15-year-old roof was damaged, the insurer calculates what that aged roof is currently worth, not what it costs to replace it.
- RCV (Replacement Cost Value) — what it actually costs to repair or replace the damaged property with new materials of like kind and quality, without deducting for depreciation.
If your policy covers RCV but the insurer pays only ACV — or applies depreciation that your policy says is recoverable once repairs are complete — that gap may be grounds for a bad faith or underpayment dispute. Check your declarations page for which coverage type applies, then compare it to what the insurer's payment summary actually shows.
Recoverable depreciation is the withheld portion the insurer is supposed to release after you finish repairs and submit proof. If you completed repairs and submitted the documentation but the insurer hasn't released that amount, put the request in writing and note the date. Unexplained failure to release recoverable depreciation is one of the cleaner bad faith indicators.
When to Consider a Public Adjuster or Attorney
A public adjuster is a licensed professional who represents policyholders — not the insurance company — in claims negotiations. They prepare independent estimates, handle documentation, and negotiate directly with the insurer on your behalf. They typically charge a percentage of the settlement, so factor that into whether hiring one makes sense for your situation.
An attorney who handles insurance bad faith cases — sometimes called a first-party insurance attorney — is the right call when the insurer's conduct has been egregious enough that you want to pursue damages beyond the original claim amount. In some states, bad faith claims can result in the insurer paying attorney's fees, interest, or additional damages. What's available depends entirely on your state's law. Many bad faith attorneys work on contingency, meaning no upfront fee, but verify the fee arrangement before signing anything.
Neither option replaces doing the documentation work yourself first. The public adjuster and the attorney both need your paper trail — and if you've already built it, you walk in better prepared than most clients they see.
A Word on Deadlines — Read Your Policy Now
Homeowners policies contain multiple time limits that can cut off your rights if you miss them. These include the proof-of-loss window (a deadline to submit a formal sworn statement of your loss), the appraisal demand deadline, and the suit-limitation clause (the period within which you must file a lawsuit against the insurer). These limits vary by policy and by state, and they can be much shorter than you'd expect. Missing one can end your claim entirely, even if the underlying bad faith is clear.
Do not rely on this page or any other online source for specific deadline figures. Open your policy, find the conditions section, and read it. If the language isn't clear, ask your state DOI or a licensed attorney to walk you through it. The time to check is before you assume you have more time.
One Rule That Protects You — And One That Protects the Process
Pursue your claim honestly. Document the actual damage — not an inflated version. State the correct cause of loss and the correct date. Report what you know accurately. Misrepresenting any part of a claim, even to counter what you believe is insurer misconduct, is insurance fraud, which is a crime. It can void your entire policy, result in a denial you can't appeal, and carry civil or criminal penalties. The strongest position you can be in is one where every fact you've documented is accurate and verifiable.
Bottom Line
A bad faith insurance claim isn't just a denied claim — it's a claim where the insurer failed its legal duty to deal honestly and fairly with you. You have real options short of hiring someone: read your policy, document everything, appeal in writing, invoke the appraisal clause if it applies, and file a DOI complaint. Those steps cost nothing, build your case regardless of where it goes, and sometimes resolve the dispute entirely. If they don't, you'll be better prepared for whatever comes next.
Home Claim Pushback provides general information and templates to help you understand and dispute a denied or underpaid home insurance claim. It is not legal or insurance advice, and no outcome is guaranteed. Insurance rules, appeal rights, and deadlines vary by policy and by state and can change — verify with your policy, your state Department of Insurance, or a licensed attorney or public adjuster. Never misrepresent a claim. Written and maintained by Andrea. Last updated June 2025.