Bad faith is a term that describes conduct by an insurance company that is so unfair that it exceeds mere negligence. When a court or state insurance department finds that an insurance company has acted in bad faith, the person bringing the complaint may collect substantial damages.Bad faith claims are often associated with the insurance company’s failure to act in the best interest of the insured. The company may arbitrarily refuse to settle a claim or provide a wholly inadequate defense for the insured. In short, bad faith takes place when an insurance company unreasonably withholds benefits from a legitimate claimant.
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A tort created by judicial decision that allows an insured to recover tort damages (bodily injury, emotional distress, loss of use, trouble and inconvenience, and punitive damages) if an insurer intentionally, or in willful disregard of the rights of the insured, does something that deprives the insured of the right to recover the benefits of the policy.