What is insurance bad faith?
Why is this the case? Because when consumers buy insurance they generally: (a) cannot set the terms of the contract; (b) are not in equal bargaining position with the insurer; (c) the insurer agrees to pay the amounts owed under the policy; and (d) at the time a policy holder tries to collect they are generally facing great distress - a wrecked car, a burned out house, or a terrible injury. The law recognizes that under these circumstances it would be fundamentally unfair for an insurance company to take advantage of the situation. Therefore the law sets special obligations as to how insurance companies must treat their policy holders.
Bad faith laws require insurance companies to live up to their end of the insurance contract. Your insurance company has an obligation to deal with you fairly and promptly. If an insurance company does not play by these rules, it may owe you more than the amount of your policy.
There are many ways that insurance companies can commit bad faith. For example, an insurer may fail to promptly and fully investigate your claim. An insurer may choose to delay or deny payment of your claim. An insurer may also use unreasonable interpretations of the policy language so as to limit your recovery or avoid payment all together.
It is important to remember that your insurance company must treat you fairly. If the company does not, you have rights - namely to bring a bad faith claim.