Bad Faith Legal Definition: Everything You Need to Know
The bad faith legal definition is when a person does something untrustworthy in a legal matter, i.e. giving the wrong idea to others about legal matters.3 min read
The bad faith legal definition is when a person does something untrustworthy in a legal matter. This might include:
- Not following through with legal obligations.
- Giving the wrong idea to others about legal matters.
- Going into an agreement knowing you won't honor it.
- Acting dishonestly in a legal situation.
Individuals can file lawsuits over breaches of trust. Most states acknowledge "implied covenant of good faith and fair dealing." When someone violates this, the other party involved can file a lawsuit. Bad faith can be brought up as a defense in a contract suit. A bad faith offer or bad faith contract are the terms used to describe a bad faith business deal. Examples of bad faith involving business deals done dishonestly include:
- Going into an agreement knowing you will not adhere to it.
- Giving misleading information about something that is bought or sold.
What Is Bad Faith?
Bad faith can also include a person trying to get ahead by being dishonest with another person. Bad faith is breaking a legal commitment to another party. All commitments are affected, including paying claims or canceling an insurance policy. Insurers can be found guilty of bad faith if they:
- Don't investigate a claim appropriately.
- Delay a payment for a long period.
- Deny benefits of a claim in an unreasonable way.
- Translate policy language in an unreasonable way.
- Don't settle a case or refuse to issue you a refund for your loss.
Some policies have a specific amount of time in which to settle a claim. If they don't, a "reasonable time" is provided, which is subjective based on each case.
A person who files a suit against someone else to harass them is doing so in bad faith. If the court proves that harassment was the reason for the filing, the defendant's attorney fees will be awarded.
If a person's main goal is to deceive and defraud him or herself or someone else, this is also considered bad faith. "Double heartedness" goes hand in hand with bad faith. Double heartedness involves a person acting a certain way on the surface but with bad motives.
When someone is doing something in bad faith, it's to cheat another person out of something. Take, for example, a boss promising an employee something, without ever planning to keep that promise. Or, an attorney arguing a legal position that is not true, such as his client being innocent. A person can also use bad faith against him or herself. A hypochondriac, for example, makes himself believe he is sick when he is perfectly healthy.
A person acting in bad faith might go into an agreement without intending to complete the agreement. This person might also falsely represent the details of an item, such as a home or car, being sold to someone who will then buy it under false pretenses. A person performing in bad faith is trying to lie about something to get ahead.
Contract negotiations are notorious for being involved in bad faith situations. These include issuing cancellations and paying out insurance claims.
Elements of a Bad Faith Insurance Claim
Insurance companies have more power than policyholders. They have more finances, can negotiate, and are experts in their field. Most courts find that insurance companies deal with fairness and good faith with their clients. You can file a lawsuit if your insurance company does not act fairly concerning the processing, researching, or payment of your claim. State law defines bad faith concerning insurance companies.
Elements of Common Law Bad Faith
The common law components of bad faith vary between states. Several states define bad faith as behavior that has been “unreasonable or without proper cause.” Some states have a more limited view of the definition of bad faith.
When deciding whether an insurance company has acted improperly, the court might look for one of these acts of bad behavior:
- Providing misleading facts or policy terms.
- Not acknowledging or addressing a claim right away.
- Not investigating and processing claims properly.
- Not approving or denying claims promptly, even after receiving the insured's proof of loss.
- Not giving a good reason for denying a claim.
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