A bad-faith claim alleges that an insurer unreasonably failed to pay, defend or settle a covered claim, and it can expose the insurer to liability beyond the policy limits. It changes how insurers and claimants approach settlement.
Standards differ by jurisdiction, but the core question is whether the insurer acted reasonably in handling a claim. A failure to accept a reasonable demand within limits is a common trigger.
The possibility of excess liability affects negotiation. It can push an insurer toward settlement and can create additional recovery sources for claimants, which funders and counsel take into account.
A bad-faith claim is not a claim on the underlying injury. It is a separate action about how the insurer behaved.
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