What Is Insurance Bad Faith? Your Rights When Insurers Act Unfairly

You have a valid insurance claim. Your insurer is delaying, lowballing, misrepresenting your policy terms, or simply refusing to engage seriously with your appeal. What you might be experiencing is insurance bad faith — and it is potentially one of the most actionable situations a policyholder can be in.

Bad faith insurance practices are recognised across major insurance markets and can expose insurers to regulatory sanctions, reputational damage, and in some jurisdictions, punitive damages well beyond the original claim value.

This guide explains what insurance bad faith means, how to recognise it, how to document it, and what your remedies are.

What Is Insurance Bad Faith?

In insurance law, every insurance policy contains an implied covenant of good faith and fair dealing. The insurer's obligation is not just to pay valid claims — it is to handle every stage of the claims process honestly, transparently, and with reasonable diligence.

Insurance bad faith occurs when an insurer breaches this duty by acting unreasonably, dishonestly, or in disregard of the policyholder's rights. It can occur at the claims stage, the appeals stage, or during the underwriting and disclosure process.

The term "bad faith" has a specific legal meaning in US insurance law (where it can result in extracontractual damages and punitive awards). In the UK, Australia, Singapore, Ireland, and other regulated markets, the equivalent concepts are expressed as:

• Unfair claim handling
• Breach of the duty of good faith
• Breach of regulatory obligations (FCA Consumer Duty, AFCA Rules, MAS Fair Dealing)
• Unconscionable conduct

The remedies differ by jurisdiction, but the underlying principle is the same: insurers must deal fairly with policyholders.

How to Recognise Insurance Bad Faith

Not every denied claim represents bad faith. Insurers are entitled to deny claims that genuinely aren't covered. Bad faith involves something more — unreasonable conduct in the handling process. Common indicators include:

Unreasonable delay: Sitting on a claim for months without legitimate reason. Delaying to pressure the claimant into accepting a lower settlement. Failing to respond to correspondence. Most regulated markets impose specific response timeframes — breaching these is a bad faith indicator.

Denying claims without adequate investigation: Refusing a claim without properly investigating the facts or obtaining relevant evidence. Making a decision on incomplete information and refusing to consider additional evidence.

Misrepresenting policy terms: Telling you your claim isn't covered when the policy language actually covers it. Citing exclusions that don't apply. Describing the policy in misleading ways.

Lowball settlement offers: Offering a settlement far below the genuine value of a valid claim, hoping the policyholder will accept rather than fight. Making the offer contingent on a quick acceptance without time to seek advice.

Repeated requests for unnecessary documentation: Asking for the same information multiple times, or requesting documentation that is irrelevant to the claim, to delay or discourage the claimant.

Failing to communicate the basis of the denial: Giving vague reasons that prevent the policyholder from effectively appealing.

Threats or coercive tactics: Threatening to report suspected fraud without reasonable grounds, or implying that an appeal will damage the policyholder's relationship with the insurer.

Ignoring supporting evidence: Dismissing clearly relevant medical reports, engineering assessments, or other expert evidence without explanation.

Misrepresenting the law or the policyholder's rights: Telling you the FOS/AFCA/FIDReC process won't help you, or that you have no right to escalate.

Insurance Bad Faith by Country

United Kingdom

The FCA's Consumer Duty (PS22/9) is the primary framework for fair treatment of insurance customers in the UK. The Consumer Duty requires insurers to:

• Act to deliver good outcomes for retail customers
• Not cause foreseeable harm
• Enable customers to achieve their financial objectives
• Communicate clearly and honestly

The FCA can investigate insurers for Consumer Duty breaches and impose significant financial penalties. The Financial Ombudsman Service can award compensation for distress and inconvenience caused by poor treatment, in addition to the claim itself.

There is no separate tort of "bad faith insurance" in English law as exists in some US states, but the combination of Consumer Duty, the implied contractual duty of good faith, and FOS jurisdiction creates a similar practical framework.

Australia

The Insurance Contracts Act 1984 contains an express duty of utmost good faith (section 13), which applies to both parties but is particularly significant for insurers. Breach of this duty by the insurer can be referred to ASIC, which can take regulatory action.

AFCA can award compensation for non-financial loss (stress, inconvenience, anxiety) of up to $5,500, in addition to paying the underlying claim. AFCA also assesses the insurer's conduct throughout the process.

In egregious cases, Australian courts have awarded significant damages beyond the policy amount for breach of the duty of good faith, though this is relatively rare in Australian insurance law compared to US bad faith doctrine.

Singapore

MAS's Fair Dealing Guidelines require insurers to treat customers fairly. MAS can take enforcement action against insurers that repeatedly or systematically breach fair dealing obligations. FIDReC can consider the insurer's conduct in its mediation and adjudication.

Ireland

The Consumer Insurance Contracts Act 2019 imposes a statutory duty of good faith on insurers. The Financial Services and Pensions Ombudsman (FSPO) can award up to €500,000 plus additional amounts for non-financial loss. The Central Bank of Ireland takes regulatory action for systemic conduct failures.

Malaysia

BNM's Fair Treatment of Financial Consumers (FTFC) framework requires fair dealing throughout the insurance relationship. The OFS can award binding remedies and make recommendations to BNM about systemic insurer conduct.

How to Document Insurance Bad Faith

Documentation is everything. Without a clear record, it is difficult to demonstrate that an insurer acted in bad faith rather than simply making a decision you disagree with. From the moment you suspect bad faith, document everything:

Create a Claims Log

Maintain a running log of every interaction with your insurer:

• Date and time of every call
• Name of the representative you spoke with
• Summary of what was said
• Any commitments made and whether they were fulfilled

This log is powerful evidence of delays, broken promises, and inconsistent statements.

Save All Written Correspondence

Keep every email, letter, and message from your insurer. Do not delete anything, even if it seems irrelevant. Organise correspondence chronologically.

Follow Up Every Phone Call in Writing

After every significant phone conversation with your insurer, send an email confirming what was discussed and any commitments made. This creates a contemporaneous written record that is very difficult for the insurer to dispute.

Document All Delays

Note when you submitted each piece of information and when (if ever) the insurer responded. If you were promised a decision within 10 days and it took 6 weeks, note this specifically.

Gather Independent Evidence

If the insurer is using a biased or inadequate assessment, get your own independent expert report. The contrast between the insurer's assessment and your independent expert's report can itself be evidence of bad faith.

What You Can Do

File a Regulatory Complaint

If you believe your insurer is acting in bad faith:

• UK: Report to the FCA at fca.org.uk. The FCA takes Consumer Duty compliance seriously.
• Australia: Report to ASIC at asic.gov.au for systemic conduct concerns. File with AFCA for individual disputes.
• Singapore: Report to MAS at mas.gov.sg for regulatory concerns.
• Ireland: Report to the Central Bank of Ireland at centralbank.ie.
• Malaysia: Report to BNM via BNMLINK at bnm.gov.my.

File with the Ombudsman

Even if you suspect bad faith, file your complaint through the standard ombudsman process. Ombudsman bodies routinely consider the insurer's conduct — including delays, misrepresentation, and inadequate investigation — when determining outcomes and compensation awards.

In the UK, FOS routinely awards compensation for distress and inconvenience caused by poor claims handling, separate from the underlying claim payment.

Consider Legal Action

For significant claims where there is clear evidence of bad faith, legal action may be warranted. In jurisdictions where bad faith or unconscionable conduct are recognised in law (Australia, Ireland, UK), a solicitor specialising in insurance disputes can advise on the prospects of a claim for damages beyond the policy amount.

Many insurance dispute solicitors offer initial consultations at no charge or on a no-win, no-fee basis for strong cases.

Common Mistakes When Dealing with a Bad Faith Insurer

Not documenting in real time: Memory of conversations fades. Create your log immediately after each interaction.

Not following up phone calls in writing: Without written records, it's your word against the insurer's.

Accepting repeated delay without complaint: Each time a deadline passes, formally complain in writing. This creates a documented pattern of delay.

Not knowing the required response timeframes: Most regulated markets have specific timeframes (UK: 8 weeks; Australia: 30 days; Ireland: 40 business days). Know when the insurer has breached these.

Being intimidated by the insurer: An insurer that threatens, pressures, or dismisses your rights is more likely to be engaged in bad faith, not less. Stand firm, document everything, and escalate.

Getting Help

If you believe your insurer is acting in bad faith, a professional, well-documented appeal letter can signal to the insurer that you are a sophisticated complainant who knows their rights.

ClaimBack (claimback.app) generates professional appeal letters that reference the relevant regulatory obligations for your country — including Consumer Duty in the UK, the duty of good faith under Australia's Insurance Contracts Act, and the FTFC framework in Malaysia. The tool is free and produces letters that clearly put your insurer on notice of their obligations.

Summary

1. Insurance bad faith means an insurer is acting unreasonably, dishonestly, or in breach of regulatory duty
2. Document everything: call logs, correspondence, delays, broken promises
3. Follow up every phone call in writing immediately
4. Know the required response timeframes in your country and note every breach
5. File a regulatory complaint with the FCA, ASIC, MAS, or the relevant body for systemic conduct
6. Use the ombudsman process — bodies like FOS, AFCA, and FIDReC consider insurer conduct in their awards
7. For significant claims, consider specialist legal advice on bad faith remedies