Simply put, bad faith is fraud. It is an attempt to deceive a person intentionally and/or maliciously by promising something and taking money for a guarantee when you have no intention to fulfill it. Bad faith does not occur when a business owner makes an honest error in estimating his or her ability to complete a job, fulfill contract terms or when the mistakes and accidents occur. Bad faith is defined as an attempt to deceive another party.

When a policyholder is not honest on the application, the insurer generally holds the right to withdraw or rescind the contract. But what happens when the insurance company isn’t honest and has no intention of paying claims? In that instance, they have acted in bad faith and the policyholder can consider recovery through a lawsuit.

As a consumer, it is very difficult to go up against an insurer. You can talk to the customer service department, talk to the claims department, ask for managers and even write angry letters but at the end of the day, it generally feels like the insurance company holds all the cards and you are completely powerless.