What is insurance bad faith?
Insurance bad faith means an insurance company handling a claim unfairly, for example by not trying in good faith to reach a prompt, fair settlement once it is reasonably clear the company owes the money. Texas lists that failure as an unfair settlement practice. A low offer alone is not bad faith.
Last checked November 9, 2026 · Official sources (5)
What does bad faith look like? An example
Example: an uninsured driver hits you. Your medical bills alone are $40,000, the police report blames the other driver, and you carry $50,000 of uninsured motorist coverage with your own company. You send every record it asks for. Nine months later the company offers $4,000, gives no reason, and stops returning calls.
That pattern, a clear claim, no explanation and a delay with an offer far below the bills, is the kind of conduct bad faith rules are aimed at. The other driver’s insurer has a duty too: Texas’s regulator says it must act in good faith and try to settle your claim quickly and fairly.
Why does bad faith matter to you?
It gives you leverage and, sometimes, a separate claim. Insurers know that unfair handling can expose them to penalties or lawsuits. Writing down dates, requests and reasons builds the record.
- Ask for every denial or offer reason in writing.
- Keep a log of calls, letters and what you sent.
- File a complaint with your state insurance department if the company stops responding.
How do Texas and Arizona treat bad faith?
| Question | Texas | Arizona |
|---|---|---|
| What the statute targets | Failing to try in good faith to settle once liability is reasonably clear. | Unfair claims practices, enforced by the director. |
| Whose claims | Claims by an insured or beneficiary. | Ask your state page or a lawyer. |
| Can a person sue under it? | Yes, a person with actual damages may sue. | No private right under that statute. |
Both states also have case law on bad faith that goes beyond these statutes. Whether you can sue, and whom, depends on whether the insurer is yours or the other driver’s. That is a question people commonly take to a lawyer.
Bad faith vs. a low offer
A low offer is a negotiating position. Bad faith is about how the claim is handled: ignoring clear evidence, delaying without reason, misstating the policy or refusing to explain. You can disagree with an offer without the insurer having acted in bad faith.
Questions
Can I sue the other driver’s insurance company for bad faith?
Usually the duties run to the insurer’s own customer; the Texas statute speaks of claims by an insured or beneficiary. Rules differ by state, so ask a lawyer about your facts.
Where do I complain about an insurer?
Your state insurance department takes complaints about claim handling. Send the complaint in writing with copies of your letters.
Is a denied claim always bad faith?
No. A denial can be lawful. It becomes a concern when the insurer has no reasonable basis or will not explain its reasons.
Find out if you are owed money.
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See if I’m owed moneySources (5)
- Tex. Ins. Code ch. 541, checked 2026-11-09. “failing to attempt in good faith to effectuate a prompt, fair, and equitable settlement of: (A) a claim with respect to which the insurer's liability has become reasonably clear”
- Tex. Ins. Code ch. 541, checked 2026-11-09. “A person who sustains actual damages may bring an action against another person for those damages caused by the other person engaging in an act or practice”
- A.R.S. § 20-461(D), checked 2026-11-09. “Nothing contained in this section is intended to provide any private right or cause of action to or on behalf of any insured or uninsured resident or nonresident of this state.”
- Texas Department of Insurance, checked 2026-11-09. “The prompt payment law doesn’t apply if another driver’s insurance company is paying the claim. But the company must act in good faith and try to settle your claim quickly and fairly.”
- Tex. Ins. Code ch. 541, checked 2026-11-09. “to engage in the following unfair settlement practices with respect to a claim by an insured or beneficiary”