# Bad faith

> Insurance bad faith is an insurer's unreasonable refusal, delay or underpayment of a valid claim. Many states allow penalties for it. Plain-English guide.

Canonical page: https://accidentclaimfacts.com/glossary/bad-faith/  
Last reviewed: October 29, 2026 by the Accident Claim Facts editorial team  
General information, not legal advice. Talk to a licensed attorney in your state.

## Quick answer

In insurance, bad faith means an insurer unreasonably refuses, delays or underpays a valid claim, or otherwise breaks its duty to deal fairly. Many states let policyholders recover extra damages or penalties for it, and state insurance departments can act on complaints.

## In a car accident claim

Bad faith claims most often involve your own insurer, on a first party claim such as personal injury protection, collision or [uninsured motorist](https://accidentclaimfacts.com/accidents/uninsured-driver-accidents/) coverage, because your policy is a contract. A model law from the National Association of Insurance Commissioners, which many states have adopted in some form, lists unfair claims practices. They include not attempting in good faith to effectuate prompt, fair and equitable settlement of claims submitted in which liability has become reasonably clear, and failing to give a reasonable and accurate explanation of the basis for a denial or a compromise offer.

A low offer is not automatically bad faith; the issue is whether the insurer acted unreasonably. The rules for claims against the other driver's insurer are narrower, since that insurer's contract is with its own customer. Texas is one example. Prompt-payment deadlines apply to first-party claims: claims you make under your own policy that your insurer pays to you, not claims against the other driver's insurer. See the guides to the [insurance adjuster](https://accidentclaimfacts.com/claim-process/insurance-adjuster/) and the [demand letter](https://accidentclaimfacts.com/claim-process/demand-letter/) for how claims and offers are documented.

## Example

> **Example:** A driver's own insurer agrees that an uninsured driver caused the crash, and it has all the medical records it asked for. Months pass with no decision and no explanation. The driver files a complaint with the state insurance department and asks a lawyer whether the delay could count as bad faith under state law.

## Related terms

- [Insurance adjuster](https://accidentclaimfacts.com/glossary/adjuster/)
- [Cooperation clause](https://accidentclaimfacts.com/glossary/cooperation-clause/)
- [Time-limited demand](https://accidentclaimfacts.com/glossary/time-limited-demand/)
- [Policy limits](https://accidentclaimfacts.com/glossary/policy-limits/)

## FAQ

### Can I sue the other driver's insurance company for bad faith?

It depends on the state. The other driver's insurer owes its main duties to its own customer, so injured third parties usually have fewer options than policyholders. A licensed attorney in your state can explain what applies.

### Where do I report an insurance company for bad faith?

The NAIC suggests that you try to resolve the problem with the insurer first. If that fails, you can file a complaint with your state's insurance department, which regulates insurers.

## Sources

- [Cornell Law School, Legal Information Institute, Wex: bad faith](https://www.law.cornell.edu/wex/bad_faith) — general definition and the duty of good faith and fair dealing
- [NAIC, How do I file a complaint against my insurance company?](https://content.naic.org/article/how-do-i-file-complaint-against-my-insurance-company) — the complaint process
- [NAIC, Unfair Claims Settlement Practices Act (Model 900), Sec. 4](https://content.naic.org/sites/default/files/model-law-900.pdf), checked October 29, 2026
- [Texas Legislature, Insurance Code § 542.051(2)](https://statutes.capitol.texas.gov/Docs/IN/htm/IN.542.htm), checked October 29, 2026
- [NAIC, How to File a Complaint](https://content.naic.org/consumer/how-to-file-complaint), checked October 29, 2026