Key Takeaways

  • Bad faith involves deceit, dishonesty, or failure to fulfill legal or contractual obligations.
  • Implied covenants of good faith apply to most contracts and are legally enforceable.
  • Insurance companies can be sued for bad faith if they mishandle claims.
  • Proving bad faith in court often requires demonstrating intent, pattern of behavior, and lack of justification.
  • Examples of bad faith include withholding information, stalling, or manipulating policy terms.

Acting in bad faith is an act of intentional dishonesty that occurs from someone not fulfilling their legal obligations, deliberately misleading someone, entering into an agreement with them with no intention of fulfilling the obligations, or violating the basic principals of honesty in your dealings with others.

States will recognize a breach of the implied covenant of good and fair dealing as acting in bad faith in regards to lawsuits for contract breach. An act of bad faith can be used as a defense for a breach of contract suit.

The idea of bad faith is also considered related to the term "double heartedness" which means that a person will act one way when their intentions are sinister and different than they appear on the surface. There are many types of bad faith acts and some that you may find include:

  • A boss who makes a promise to an employee that they have no intention to fulfill
  • A lawyer arguing a legal position that they are aware is false
  • A realtor who misrepresented the quality or value of a property to gain the sale
  • A bad faith act can be anything where someone has attempted to mislead or deceive another person to gain some benefit

Good Faith and Fair Dealings

When someone enters into a contract or agreement, there is what is termed an implied covenant of good faith and fair dealings which assumes that both parties have the goal of dealing fairly with the other. They are expected to honor their word and not attempt to shirk their obligations.

To be considered acting in good faith, it is assumed that neither party will attempt to destroy the others rights, nor interfere with the benefits that they are supposed to receive from entering into the contract. If either party strays from the path of good faith, then they run the risk of being sued for a breach of contract. This can include failing to perform any of the obligations that were set forth and understood in the regular agreement.

Legal Standards for Proving Bad Faith

To prove someone is acting in bad faith in a legal setting, the burden is typically on the claimant. Courts often require clear evidence of the following:

  • Unjustified refusal to fulfill obligations: This could include failing to pay benefits or withholding performance without a legitimate reason.
  • Misrepresentation or deception: Providing false information or omitting key facts relevant to the agreement or claim.
  • Deliberate obstruction: Taking active steps to hinder the other party from receiving their rightful benefits.
  • Pattern of delay or stalling tactics: Prolonged inaction with no valid justification may demonstrate intent to avoid obligations.

While the specific standard may vary depending on jurisdiction and context (e.g., contract law vs. insurance disputes), most courts require evidence of intent, repeated misconduct, or conscious disregard for the rights of the other party​.

Insurance Bad Faith

A legal term also used when discussing acts of bad faith is insurance bad faith. The term is exclusively used in the United States and is a legal term that refers to the tort a policyholder can file against an insurance company if the latter party acts in bad faith. Insurance companies in the U.S. are required to act in good faith when dealing with their policyholders.

If an insurance company were to violate their duty to perform good faith they have committed bad faith insurance. In this instance, the policyholder would be able to sue the insurance company for breach of contract. In cases involving insurance bad faith, the plaintiffs can often recover significantly larger amounts than the actual face value of their policy. Instances of insurance bad faith can include such things as:

  • Intentionally denying a policyholders claim
  • Misleading the policyholder with false information
  • Dishonestly adjusting a claim
  • Not processing a claim in a timely fashion
  • Misconduct during the claims process
  • Refusing to respond to a claim

Signs Your Insurance Company Is Acting in Bad Faith

If you're dealing with an insurance company, it’s important to watch for red flags that may indicate bad faith. These include:

  • Unreasonable claim delays: Delaying an investigation or payment without explanation.
  • Incomplete or lowball settlements: Offering a payout far below the claim’s value without clear reasoning.
  • Failure to communicate: Not returning phone calls, ignoring emails, or providing vague updates.
  • Policy misrepresentation: Misstating policy terms to justify a denial or limit coverage.
  • Threats or pressure tactics: Trying to coerce a claimant into accepting a lesser amount or giving up their rights.

In some cases, simply failing to provide a written explanation for a denial may be sufficient to raise a bad faith claim​.

Bad Faith Insurance Claim

A bad faith insurance claim can occur for any number of reasons such as:

  • An insurer failing to investigate a claim quickly or thoroughly
  • An insurer unreasonably delaying a payout
  • Denying benefits for those who deserve them
  • Insurers translating the language of the insurance policy in a way that makes it unreasonable
  • An insurer refusing to settle a case or reimburse the claimant for the entire amount owed

Bad faith insurance claims can result from bad actions of an insurance company or inactions which were not performed by the insurance company but should have been. Some situations in which an insurance company might be sued for an act of bad faith can include:

  • Refusing to pay the claim without having performed a full investigation
  • Refusing to settle a claim even when they know who is clearly the liable party
  • Not responding to a demand within the agreed upon time limit
  • Failure to timely pay or deny the claim
  • Not conveying the necessary and pertinent information in a claim to the claimant
  • Denying a person coverage without proper justification

Common Contexts for Bad Faith Claims

Bad faith allegations can arise in a variety of settings beyond insurance. Common contexts include:

  • Employment contracts: For example, terminating an employee based on fabricated performance issues.
  • Real estate transactions: Concealing defects in a property or falsifying disclosures.
  • Negotiations: Pretending to engage in good faith bargaining while secretly sabotaging the deal.
  • Legal representation: Attorneys filing frivolous lawsuits or misleading the court.

Regardless of the setting, acting in bad faith generally involves a lack of honesty, fairness, or adherence to the agreed terms.

Legal Remedies for Bad Faith

Victims of bad faith may be entitled to more than just the benefits originally owed. Legal remedies can include:

  • Compensatory damages: Covering direct financial losses resulting from the bad faith conduct.
  • Consequential damages: Additional losses caused by the delay or denial (e.g., lost business or emotional distress).
  • Punitive damages: In some cases, especially where the conduct is egregious, courts may award damages designed to punish the wrongdoer and deter similar actions.
  • Attorney’s fees and litigation costs: Many states allow recovery of legal fees if the court finds bad faith.

In the case of insurance disputes, policyholders often pursue both a breach of contract and a tort claim to maximize their potential recovery​.

Frequently Asked Questions

  1. What qualifies as acting in bad faith?
    Acting in bad faith typically involves intentional dishonesty, failure to fulfill contractual duties, misrepresentation, or other unfair tactics.
  2. Can I sue for bad faith if a contract wasn’t fulfilled?
    Yes, if the other party intentionally failed to uphold the agreement or interfered with your rights under the contract, you may have grounds for a lawsuit.
  3. What is needed to prove bad faith in court?
    You generally need to show clear evidence of intentional misconduct, lack of justification, and that the actions caused you harm.
  4. Is acting in bad faith a crime?
    Not usually. While it's typically a civil matter, in extreme cases involving fraud or deception, criminal charges may also apply.
  5. Can I recover more than just my original damages in a bad faith case?
    Yes. In some cases, courts award punitive damages or attorney’s fees in addition to compensatory damages, especially for egregious misconduct.

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