Demand Letter for Bad Faith Insurance: Fight Unfair Claim Denials

Your insurance company took your premiums for years. Now that you actually need them to pay a claim, they're denying it, delaying it, or offering a fraction of what you're owed. This isn't just frustrating — it may be illegal.

Insurance bad faith is when an insurer fails to honor its obligations to you, the policyholder. Every state has laws against it, and the penalties can be severe — including damages that far exceed your original claim. A demand letter is the first step in holding your insurer accountable.

What Is Insurance Bad Faith?

When you buy insurance, you're entering a contract. You pay premiums; the insurer pays covered claims. But the relationship goes further than a standard contract. Insurance companies owe you a "duty of good faith and fair dealing" — they must act honestly, investigate claims promptly, and pay what's owed without unreasonable obstacles.

Bad faith occurs when an insurer violates this duty. Here are the most common forms:

Wrongful Claim Denial

• Denying a claim without conducting a reasonable investigation
• Denying a claim that's clearly covered by the policy
• Misinterpreting or misrepresenting policy language to justify a denial
• Denying a claim based on information the insurer knows is false

Unreasonable Delays

• Failing to acknowledge your claim within a reasonable time
• Repeatedly requesting unnecessary documentation to stall the process
• Not assigning an adjuster for weeks or months
• "Losing" your paperwork and making you resubmit

Lowball Offers

• Offering significantly less than the claim is worth with no reasonable basis
• Pressuring you to accept a quick, low settlement
• Ignoring evidence that supports a higher valuation
• Using biased or unqualified experts to undervalue your claim

Failure to Communicate

• Not returning calls or responding to emails
• Failing to explain the reason for a denial
• Not informing you of deadlines or required documentation
• Transferring your claim between adjusters repeatedly

Your Legal Rights Against Bad Faith Insurers

Insurance bad faith law varies by state, but you generally have two paths:

First-Party Bad Faith

This is a claim against your OWN insurance company (homeowner's, health, auto, etc.) for failing to pay your policy benefits. Most states recognize first-party bad faith claims either by statute or common law.

Third-Party Bad Faith

This is when an insurer fails to defend or settle a claim against you (the insured) in a liability situation. For example, if someone sues you after a car accident and your auto insurer refuses to settle within policy limits, exposing you to a judgment exceeding your coverage.

Available Remedies

Depending on your state, bad faith remedies can include:

• Contract damages: The original policy benefits owed
• Consequential damages: Financial losses caused by the denial or delay (mortgage defaults, credit damage, emergency borrowing costs)
• Emotional distress: Anxiety, depression, and stress caused by the insurer's conduct
• Attorney's fees: Most states allow recovery of legal costs in bad faith cases
• Punitive damages: Designed to punish particularly egregious conduct (can be multiples of your actual damages)
• Statutory penalties: Some states impose fixed penalties per violation

Building Your Bad Faith Case

Before writing your demand letter, you need evidence. Bad faith cases are won or lost on documentation.

The Claim File

Request a complete copy of your claim file from the insurer. In many states, you have a right to this. The claim file contains the adjuster's notes, internal communications, valuation reports, and the basis for the denial — often revealing exactly where the bad faith occurred.

Communication Log

Create a detailed log of every interaction with your insurer:

• Date and time of every call, email, and letter
• Name and title of everyone you spoke with
• What was discussed and what was promised
• Reference numbers and claim numbers
• How long you were on hold, how many transfers, whether calls were returned

Policy Review

Read your policy carefully — the actual policy, not the summary. Identify the specific coverage provisions that apply to your claim. Note the definitions, exclusions, and conditions. If the insurer cited an exclusion in their denial, verify that it actually applies to your situation.

Independent Evidence

• Get independent estimates or appraisals for property damage claims
• Obtain second medical opinions for health insurance denials
• Document market comparables for undervalued auto total-loss claims
• Photograph everything the insurer claims doesn't exist or isn't damaged

Writing Your Bad Faith Demand Letter

Your demand letter should be structured, specific, and legally grounded. Here's what to include:

1. Policy Information

Identify yourself, your policy number, the claim number, and the date of loss. Reference the specific coverage provisions that apply.

2. Claim History

Provide a chronological timeline of your claim: when you reported it, what the insurer did (or didn't do), when they denied or underpaid, and every interaction since. Be factual and precise — dates, names, specifics.

3. Why the Denial/Delay Is Wrong

Explain exactly why the insurer's position lacks merit. If they cited an exclusion, explain why it doesn't apply. If they undervalued the claim, provide your independent evidence of the true value. If they delayed, show the timeline and how it violated reasonable standards.

4. Bad Faith Allegations

Explicitly state that the insurer's conduct constitutes bad faith. Cite your state's bad faith statute or the common law duty of good faith and fair dealing. Be specific about which acts constitute bad faith — don't just make a general accusation.

5. Regulatory References

Cite the Unfair Claims Settlement Practices Act (adopted in most states) and your state's specific insurance regulations. Common violations include:

• Failing to acknowledge claims promptly
• Not attempting fair and prompt settlement when liability is clear
• Compelling policyholders to file lawsuits to recover amounts due
• Not providing a reasonable explanation for claim denial

6. Your Demand

State exactly what you want:

• Full payment of the original claim under the policy
• Consequential damages with specific dollar amounts
• A deadline for response (21-30 days)
• Notice that you'll file a complaint with the state Department of Insurance
• Notice that you'll pursue a bad faith lawsuit seeking punitive damages if not resolved

Filing a State Insurance Department Complaint

In addition to your demand letter, file a complaint with your state's Department of Insurance (DOI). This is free and creates regulatory pressure that insurers take seriously. Here's why it works:

• The DOI investigates complaints and can require the insurer to respond
• Pattern complaints can trigger market conduct examinations and fines
• Insurance companies track DOI complaints carefully because they affect licensing
• The complaint creates an official government record of the insurer's conduct

File the DOI complaint the same day you send your demand letter. Mention in your letter that you've filed (or are filing) the complaint.

State-Specific Bad Faith Laws

Some states are particularly strong on insurance bad faith:

• California: Brandt fees (attorney's fees recoverable), punitive damages available, Insurance Code § 790.03
• Florida: Statutory bad faith under § 624.155, allows direct action after Civil Remedy Notice
• Pennsylvania: Bad Faith statute 42 Pa.C.S. § 8371 — punitive damages, attorney's fees, interest
• Montana: Independent cause of action, punitive damages, very consumer-friendly courts
• Washington: Insurance Fair Conduct Act — treble damages for unreasonable denials
• Connecticut: CUIPA/CUTPA — broad protections, attorney's fees

States with weaker bad faith protections (like Alabama and Michigan) still allow contract-based claims and DOI complaints.

Common Insurance Company Tactics

Knowing the playbook helps you counter it:

• "We need more documentation." Endless document requests are a delay tactic. Provide what's reasonable, but set a deadline: "I have provided all requested documentation. Please process the claim within 15 days."
• "This isn't covered under your policy." Read the actual policy language — insurers sometimes cite exclusions that don't apply or misrepresent policy terms.
• "Our expert says the damage is only worth $X." Get your own independent estimate. Insurance company experts are hired to minimize, not accurately assess.
• "We can offer you $X if you sign today." Pressure to accept a quick, low settlement is a red flag. Take your time, know your damages, and don't sign anything under pressure.
• Silence. Not responding at all is itself bad faith in most states. Document the silence and include it in your demand letter.

When to Hire a Bad Faith Attorney

Consider an attorney when:

• Your claim exceeds $15,000 and was wrongfully denied
• The insurer's conduct is particularly egregious (lying, destroying evidence, systematic delays)
• You've been denied multiple times or across multiple claims
• The policy language is genuinely ambiguous
• Punitive damages are likely available (egregious conduct in a punitive-damage state)

Bad faith attorneys typically work on contingency (25-40% of recovery) because the potential damages — including punitive damages — can be substantial. Many also offer free initial consultations.

Timeline: What to Expect

1. Send demand letter + file DOI complaint (Day 1)
2. Insurer response deadline (Day 21-30)
3. DOI contacts insurer (typically within 30-60 days of complaint)
4. Negotiation period (30-90 days)
5. If no resolution: file lawsuit (consult attorney on timing)
6. Settlement or trial (6-18 months from lawsuit filing)

Most bad faith cases settle before trial. Insurers don't want juries hearing about how they treated a policyholder who paid premiums faithfully for years.

The Bottom Line

Insurance companies are sophisticated businesses that sometimes calculate that denying or underpaying claims is more profitable than paying them — even when the claim is valid. They're betting that most policyholders will give up, accept a lowball offer, or never learn about bad faith laws.

Your demand letter says: I know the law, I have documentation, and I'm not going away. Combined with a DOI complaint and the threat of punitive damages, it's often enough to turn a denied claim into a paid one. The insurance company already has your money — make them honor the deal.

Key Takeaways

• Bad faith occurs when an insurer unreasonably denies, delays, or underpays a valid claim without a legitimate basis
• Most states allow policyholders to recover damages beyond the policy limit for bad faith, including emotional distress and punitive damages
• Document every interaction with your insurer: dates, names, what was said, and what was promised
• Filing a complaint with your state's Department of Insurance creates regulatory pressure that often speeds resolution
• A demand letter citing bad faith statutes signals you know your rights and are prepared to escalate

Related Articles

• Demand Letter to Insurance Company: How to Get Your Claim Paid
• How to File an Insurance Demand: Step-by-Step Guide
• What Happens After Sending a Demand Letter?
• How Much Does a Demand Letter Cost?