The Long-Term Impact of Bad Faith Insurance Practices

Property insurance companies have a general responsibility to use good faith settlement practices.

Broadly defined, this means that they have to honor the terms of the policy. After all, an insurance policy is a contract. Bad faith insurance practices have a serious negative long-term impact. At Insurance Claim HQ, we have extensive experience handling bad faith insurance claims. Our team holds insurance companies responsible for the damage that they have caused to homeowners and business owners with bad faith. Within this article, our New Orleans bad faith insurance attorney discusses the long-term impact that bad faith insurance practices can have on policyholders.

What is Bad Faith Insurance?

A property insurance policy is a contract. It is a contract between the policyholder (homeowner or business) and the insurance provider. When the property owner sustained a covered loss, there is a fair, reasonable, and justified expectation that the insurance company will step up and pay the claim in full, without delay. Unfortunately, some insurance companies act in bad faith in violation of the law. The American Bar Association (ABA) explains that insurers must handle claims fairly, honestly, and in good faith, refraining from unreasonable delays or denials of coverage. Bad faith insurance practices are a violation of the company’s contractual (and statutory) obligations.

The Bottom Line: The insurance company has a legal duty to treat you fairly through every stage of the claims process. If they act in bad faith, they are in violation of the law and you can hold them liable.

Some Examples of Bad Faith Insurance Practices

Bad faith insurance practices can come in a wide range of different forms. As a policyholder, it is imperative that you take a proactive approach if you suspect an insurer is violating its responsibility to act in good faith. Some specific examples of bad faith insurance practices include:

• Improper Delay: An improper delay occurs when an insurer unnecessarily prolongs the processing of a valid claim—thereby forcing the policyholder to wait excessively for payment or resolution. Tactics may include repeatedly requesting redundant documents, failing to meet response deadlines, or ignoring follow-up inquiries. For example, imagine a homeowner in New Orleans submits all required claim materials for fire damage but receives no substantive updates for months. That delay could be bad faith.

• Poor Communication: You should be able to rely on insurance adjusters for a fair, straightforward explanation of the claims process. Poor communication could be bad faith. It involves failing to provide timely, accurate, and clear information about claim status, coverage interpretations, or needed documentation. Insurers might ignore phone calls, send confusing letters, or offer vague explanations that make it difficult to know what to do next.

• Failure to Investigate the Claim: Property insurance companies have a responsibility to investigate a claim in a reasonable timeframe. Failure to investigate means an insurer neglects to properly gather evidence, review documentation, or evaluate the circumstances before deciding on coverage. As an example, imagine a policyholder in New Orleans who reports roof damage after a severe storm. However, despite repeated requests, the insurer never sends an adjuster. A few weeks later, the insurance company denied the claim on the grounds of insufficient evidence. That failure to investigate could be bad faith.

• Material Misrepresentation of the Policy: Material misrepresentation occurs when an insurer provides inaccurate or misleading explanations of policy terms, coverage limits, or exclusions. By distorting important details about the terms of the policy, insurers may try to pressure and manipulate claimants into accepting a reduced settlement agreement or even abandoning the claims altogether.

• Unreasonable (Lowball) Settlement Offer: An insurance company cannot offer an unreasonably low settlement offer and maintain its obligation to act in good faith. A lowball settlement is one where an insurer intentionally proposes a payout far below the claim’s actual value. By doing so, the insurer pressures a homeowner or a business owner to accept inadequate compensation rather than pursuing the full and fair value of their claim.

• Improper Denial of Insurance Benefits: Finally, the improper and unjustified denial of benefits could be bad faith. Broadly explained, an improper denial involves rejecting a legitimate claim without a valid reason. It is a bad faith practice that prevents policyholders from receiving benefits they are rightfully entitled to under the terms of the policy.

Three Ways Bad Faith Insurance Practices Can Have Adverse Impacts

     1. Massive Financial Strain on Homeowners and Business Owners 

First and foremost, bad faith insurance practices can have a serious, direct adverse financial impact on a policyholder. When insurers delay claims or offer unreasonably low settlements, homeowners or business owners are left covering repair costs and other damages that should have been partially or fully reimbursed. A property owner can be forced to deplete savings, incur debt, or even consider selling assets to stay afloat. Over time, the economic fallout may limit their ability to rebuild homes, resume operations, or plan for the future.

     2. Serious Emotional Distress for Policyholders

Bad faith insurance practices can also have significant emotional repercussions. Policyholders dealing with unjust delays, complicated negotiations, or sudden claim denials often experience increased stress, anxiety, and uncertainty. Instead of feeling supported by their insurance provider, they may feel betrayed or abandoned during vulnerable times. The constant worry over unpaid bills, unrepaired damages, mounting responsibilities, and the lack of clarity about what comes next can strain personal relationships and adversely impact mental well-being. Policyholders may struggle to sleep, find it difficult to concentrate on daily tasks, and be overwhelmed by anxiety.

     3. Undermine Faith in Insurance System

Our entire property insurance system relies on parties acting in good faith. A policyholder committing fraud causes damage to the trust in the system. Along the same lines, bad faith settlement practices by the insurance company also undermines the system. Indeed, bad faith behaviors erode the public’s trust and confidence in the insurance industry. When policyholders encounter unjust denials, unnecessary delays, or misleading communications, they are left questioning whether insurers genuinely prioritize their customers’ interests. Instead of a protective safety net, insurance feels like something you have to pay into but that you cannot rely on in your time of need. It is not acceptable. Property insurance companies that do not act in bad faith must be held accountable for their misconduct.

Why Policyholders Trust the Bad Faith Insurance Lawyers at Insurance Claim HQ

Bad faith insurance claims are notoriously complex. At Insurance Claim HQ, we have the skills and experience to hold the big property insurance companies legally liable for engaging in bad faith insurance practices. They must be held accountable. Bad faith insurance practices can cause significant damage to policyholders—both short-term and long-term.

Our record of case results speaks for itself. We take on the full spectrum of bad faith insurance claims. If you have any questions about your rights or your options, our New Orleans bad faith insurance attorneys offer free, confidential, and zero-obligation initial consultations.

Speak to Our New Orleans Bad Faith Insurance Lawyer Today

At Insurance Claim HQ, our New Orleans bad faith insurance attorneys are standing by, ready to protect your legal rights and help you secure the maximum possible financial benefits. Do you have any questions about bad faith insurance claims? We are here as a resource. Give us a call now or contact us online to arrange your free case review with a top attorney. Our firm handles bad faith insurance claims in New Orleans, Louisiana, and throughout the Gulf Coast Region.