Insurance is supposed to be there when you need it most. Whether it’s an auto accident, property damage, or a personal injury claim, you expect your insurance company—or the other party’s—to process your claim fairly, honestly, and in a timely manner. Unfortunately, that doesn’t always happen.
When an insurance company delays, denies, or underpays a legitimate claim without a valid reason, it may be acting in bad faith—a serious violation of your rights. In some cases, you may even be able to sue for damages beyond the original value of your claim.
In this article, we’ll explain what constitutes bad faith insurance practices in New York, how to recognize the signs, and what legal options may be available to hold an insurer accountable.
What Is Bad Faith in Insurance?
In simple terms, bad faith occurs when an insurance company fails to fulfill its legal duty to act honestly, fairly, and in good faith toward the policyholder or claimant. This duty exists because insurance contracts are based on trust: you pay premiums expecting that, when a covered event occurs, the insurer will handle your claim in good faith.
Bad faith can occur in first-party claims (where you’re dealing with your own insurance company) or third-party claims (where you’re dealing with the insurer of the at-fault party).
Common Examples of Bad Faith Insurance Practices
While every situation is unique, here are some common ways insurers act in bad faith:
- Unreasonable delays in processing or investigating a claim
- Denying a valid claim without a clear explanation or proper investigation
- Offering a settlement far below the claim’s actual value
- Misrepresenting the policy’s terms to avoid payment
- Failing to communicate important information about the claim
- Refusing to defend or settle a lawsuit when required by the policy
- Demanding unnecessary or excessive documentation to delay payment
- Cancelling a policy after a claim is filed, without legal justification
These tactics are often designed to frustrate policyholders into accepting less than they deserve—or giving up entirely.
Is Bad Faith Illegal in New York?
New York recognizes the concept of bad faith, but proving it is not easy. Unlike some other states, New York does not have a separate statute that allows private individuals to file a bad faith lawsuit for punitive damages simply because a claim was mishandled.
However, under certain circumstances, you can sue an insurance company for breaching its duty of good faith—particularly if their misconduct results in damages beyond the amount originally owed under the policy.
Courts will generally look for evidence that the insurer’s behavior was:
- Grossly negligent
- Reckless
- Motivated by self-interest or a desire to avoid paying a valid claim
If these standards are met, you may be entitled not just to the value of the original claim, but additional damages, including legal fees, interest, and—in some cases—punitive damages.
How to Know If You Have a Bad Faith Claim
It’s not uncommon for insurance companies to dispute claims or make low offers. That alone doesn’t necessarily constitute bad faith. The key question is whether the insurer had a reasonable basis for its decision and whether it handled your claim in a fair and timely manner.
Ask yourself the following:
- Has the insurance company failed to explain its denial or delay?
- Were you pressured to accept a settlement that felt unfair?
- Has the insurer refused to investigate or communicate with you?
- Do you feel you’re being treated differently now that a claim has been filed?
If the answer to one or more of these is “yes,” you may have grounds to pursue legal action.
What to Do If You Suspect Bad Faith
If you believe an insurance company is acting in bad faith, here’s what you should do:
- Document Everything
Keep detailed records of all communications with the insurer—emails, letters, phone calls, adjuster reports, claim forms, and policy documents. - Request Written Explanations
Ask the insurer to explain any delays or denials in writing. This can help clarify their position and may be useful evidence if legal action becomes necessary. - Consult an Experienced Attorney
A skilled attorney can assess whether the insurer’s behavior rises to the level of bad faith, negotiate on your behalf, and, if necessary, file a lawsuit to pursue full compensation. - File a Complaint with Regulators
You may also file a complaint with the New York State Department of Financial Services, which oversees insurance practices. While this won’t recover damages, it can trigger an investigation and support your legal claim.
Final Thoughts
Insurance companies have a powerful advantage: they write the policies, set the rules, and control the money. But they don’t have the final word—especially if they fail to treat you fairly. If you’ve experienced unjust delays, lowball offers, or wrongful denials, you may be facing more than just a claims dispute—you may be a victim of bad faith.
Understanding your rights and taking action quickly can make a major difference in how your claim is resolved. You paid for coverage. You deserve nothing less than full, fair treatment—and compensation that reflects the true value of your loss. We recommend Warner & Scheuerman.
