Did Your Insurer Deny Your Claim in Bad Faith? Signs and What to Do
Insurance bad faith is illegal and actionable. If your insurer denied a valid claim wrongfully, you may be owed far more than just the original claim amount.
Most insurance denials are wrong but not illegal. They're denials you can fight through the appeals process and win. But some denials cross a different line — they're not just wrong, they're made in bad faith. Knowing the difference can mean the difference between winning an appeal and winning a lawsuit.
If your insurer denied your claim in bad faith, you may be entitled to damages that go far beyond the amount of the denied claim — including punitive damages and attorney's fees in some states.
Here's what bad faith means, how to recognize it, and what your options are.
What Is Insurance Bad Faith?
Insurance is a contract. When you pay premiums, your insurer agrees to pay covered claims. Insurance bad faith occurs when an insurer deliberately or unreasonably fails to honor that contract.
There are two types:
First-party bad faith: The insurer unreasonably denies or delays payment of your own claim under your own policy. This is what we're focused on here.
Third-party bad faith: An insurer fails to reasonably settle a lawsuit against one of its policyholders. This is more common in liability insurance contexts.
The key word in first-party bad faith is "unreasonably." Insurers can make honest mistakes. They can misapply criteria. They can be wrong without being in bad faith. Bad faith requires that the insurer acted without a reasonable basis — and often requires that they knew they were acting without a reasonable basis.
Warning Signs Your Claim May Have Been Denied in Bad Faith
1. The denial contradicts your own medical records
If your insurer denied your claim citing a lack of medical documentation — and your file clearly contains that documentation — this is a red flag. An insurer that ignores evidence in its own possession when denying a claim may be acting in bad faith.
2. Shifting denial reasons
The insurer denied your claim for one reason. After you appealed and addressed that reason, they came up with a different reason. Then another. If the denial reasons keep changing rather than being consistently applied, this suggests the insurer is looking for any excuse rather than conducting a legitimate review.
3. Unreasonable delays without explanation
Every plan has response timelines set by law. If your insurer is repeatedly delaying your claim review without explanation, failing to meet statutory deadlines, or asking for documentation they already have — these are signs of either bad faith or reckless claims handling.
4. Failure to conduct a reasonable investigation
Insurance companies are required to investigate claims reasonably before denying them. If your insurer denied your claim without ever requesting records, without ever having a qualified medical professional review the clinical evidence, or without giving you the opportunity to provide supporting information — the investigation was inadequate.
5. Misrepresenting your policy
If your insurer is telling you that something isn't covered when your policy clearly does cover it — or mischaracterizing the terms of your plan to justify a denial — this is a serious indication of bad faith.
6. Pressuring you to accept less
In some cases, insurers pressure claimants to accept partial payments in full settlement of claims worth significantly more. If you're being pressured to accept a lowball offer on a clear claim, be cautious.
7. The denial is contradicted by the insurer's own expert
If an independent expert hired by the insurer supports coverage or medical necessity, but the insurer denies anyway — this is powerful evidence of bad faith.
What to Do If You Suspect Bad Faith
Document everything immediately
Start keeping a detailed log of every communication: dates, times, who you spoke to, exactly what was said. Keep every letter, every email, every portal notification. Print and save online communications.
ClaimBack generates a professional appeal letter in 3 minutes — citing real insurance regulations for your country. Get your free analysis →
This documentation is the foundation of any bad faith claim.
Continue your formal appeals
Don't skip the appeals process even if you believe bad faith is occurring. Exhausting your internal appeal and External Independent Review: Complete Guide" class="auto-link">external review rights is generally required before you can sue (and it may also resolve your claim without litigation).
Your documentation of bad faith conduct during the appeals process strengthens your legal case if litigation becomes necessary.
File regulatory complaints
A formal complaint with your state insurance commissioner serves multiple purposes:
- It puts your complaint on the regulatory record
- It may trigger an investigation of the insurer
- It can be introduced as evidence of a pattern of bad faith conduct
- State commissioners sometimes successfully intervene to resolve claims
File with the Department of Labor (for ERISA employer plans) or CMS (for Marketplace plans) as well.
Consult an insurance bad faith attorney
If you believe your claim was denied in bad faith, consult with an attorney who specializes in insurance bad faith law. Most of these attorneys offer free consultations and work on contingency — meaning you pay nothing unless you win.
Why this matters financially: In many states, a successful bad faith lawsuit can result in:
- The original claim amount
- Damages for consequential harm caused by the denial (medical expenses you paid out of pocket, harm from delayed treatment)
- Emotional distress damages
- Punitive damages (to punish egregious conduct)
- Attorney's fees
For a significant denied claim, the potential recovery in a bad faith lawsuit can dramatically exceed the original claim value.
Understand ERISA limitations
For employer-sponsored plans governed by ERISA, bad faith claims are significantly more limited than for individual market plans. ERISA generally preempts state bad faith laws and limits your damages to the original claim amount plus attorney's fees in some circumstances.
This is one of the most controversial aspects of health insurance law — ERISA insulates large employer insurers from state bad faith suits that would otherwise apply. For ERISA plans, your primary remedies are the appeals process, EBSA complaints, and ERISA Section 502 lawsuits.
For individual market, small group, or Medicaid plans, state bad faith law applies with full force.
The Most Important Point
Bad faith law exists because insurance companies hold significant power over policyholders in vulnerable moments. The law imposes real consequences on insurers who abuse that power.
If your insurer denied a valid claim without reasonable basis — if they played games with your health and your money — they should be held accountable.
The appeals process is your first step. An attorney consultation may be your most powerful next step.
Fight Back With ClaimBack
ClaimBack helps you build the strongest possible appeal record — which is also the foundation of any future bad faith claim. Start documenting and fighting back today.
Start your appeal at https://claimback.app/appeal
A bad faith denial isn't just wrong — it may be illegal. Know your rights.
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