5 Signs Your Insurance Company Is Acting in Bad Faith

You pay premiums so that when something goes wrong, your insurer pays what it owes. When it doesn't, that may be more than a coverage dispute. California law imposes specific duties on insurance companies, and violating those duties exposes them to significant liability. Here are five patterns we see regularly that indicate bad faith.

The Legal Framework

Every insurance contract in California includes an implied covenant of good faith and fair dealing. This obligation was established in Comunale v. Traders & General Ins. Co., 50 Cal.2d 654 (1958), and further defined in Gruenberg v. Aetna Ins. Co., 9 Cal.3d 566 (1973). When an insurer breaches this covenant by unreasonably withholding benefits, the policyholder can sue for breach of contract AND the separate tort of bad faith. The tort claim opens the door to emotional distress damages and, in egregious cases, punitive damages under Civil Code § 3294.

1. Denying Without Investigating

California Insurance Code § 790.03(h) and the Fair Claims Settlement Practices Regulations (Cal. Code Regs. tit. 10, § 2695.1 et seq.) require insurers to conduct a thorough, fair, and objective investigation before denying a claim. If the insurer denied your claim without reviewing your medical records, without speaking to your doctor, without examining the damage, or without addressing the evidence you submitted, that's a problem. A denial that rests on an incomplete investigation is the textbook definition of unreasonable claims handling.

2. Delay Without Justification

Under California's Fair Claims Settlement Practices (Insurance Code § 790.03(h)(3)), insurers must acknowledge receipt of a claim within 15 calendar days and accept or deny within 40 calendar days. Persistent delays, repeated requests for the same documents, and unexplained silences are red flags. Delay is sometimes a deliberate tactic: the insurer hopes you will give up, accept a lowball offer, or miss a deadline. Unreasonable delay can itself constitute bad faith, even if the claim is eventually paid.

3. Lowball Offers Disconnected from Your Damages

A legitimate coverage dispute involves a good-faith disagreement about what the policy covers. That is different from an offer so low it has no rational relationship to your actual damages. If your medical bills are $80,000 and the carrier offers $8,000 without explanation, that is not a reasonable evaluation. The insurer's duty of good faith requires it to make a fair assessment of the claim's value, not simply start as low as possible and hope you'll take it.

4. Misrepresenting Policy Language

Under California law, ambiguous policy language is construed against the insurer (AIU Insurance Co. v. Superior Court, 51 Cal.3d 807 (1990)). If your insurer tells you a particular loss isn't covered and you can't find a clear exclusion in your policy, the insurer may be misrepresenting your coverage. This is particularly common in disability insurance (where carriers redefine "disability") and property insurance (where carriers argue over the cause of loss). If the insurer's interpretation requires reading language into the policy that isn't there, that's bad faith territory.

5. Coercive or Threatening Behavior

Threatening to cancel your policy for filing a claim. Suggesting your premiums will skyrocket. Pressuring you to accept a quick settlement before you've completed medical treatment. These tactics are designed to discourage you from pursuing what you're owed. An insurer that responds to a legitimate claim with threats rather than fair handling is not acting in good faith.

What You Can Recover

Bad faith damages in California can include: the full policy benefits owed plus interest, consequential economic damages (lost income, credit harm, costs of obtaining alternative coverage), emotional distress, and punitive damages. In Neal v. Farmers Ins. Exchange, 21 Cal.3d 910 (1978), the California Supreme Court confirmed that an insurer's bad faith refusal to pay benefits can give rise to tort damages far exceeding the policy limits. The availability of punitive damages is a powerful incentive for insurers to take claims seriously.