Insurance Bad Faith — No Win No Fee
When an insurance company unreasonably denies, delays, or underpays a valid claim, policyholders can pursue a bad faith lawsuit on a contingency fee basis. These cases may result in damages beyond the original policy limits, including punitive damages.
What Constitutes Insurance Bad Faith?
Direct Answer: Insurance bad faith occurs when an insurer unreasonably denies, delays, or underpays a valid claim. It violates the implied covenant of good faith in every insurance contract. Bad faith attorneys typically work on contingency, and damages can include the policy amount, consequential losses, and punitive damages.
Insurance companies enter into contracts with policyholders that carry an implied covenant of good faith and fair dealing. Bad faith occurs when the insurer breaches this duty by acting unreasonably in handling a claim. The standard for "unreasonable" conduct varies by state, but common indicators include:
- Denying a claim without a reasonable basis
- Failing to conduct a thorough investigation
- Unreasonable delay in processing or paying a claim
- Offering significantly less than the claim's fair value
- Misrepresenting policy terms or coverage
- Failing to defend a policyholder in a covered lawsuit
First-Party vs Third-Party Bad Faith
First-party bad faith arises when an insurer mistreats its own policyholder — for example, denying a homeowner's claim after a fire, or underpaying an auto collision claim.
Third-party bad faith arises when an insurer fails to properly defend or settle a claim brought against the policyholder by a third party — for example, refusing a reasonable settlement demand within policy limits, exposing the policyholder to an excess judgment.
Damages and Remedies
Bad faith damages often exceed the original policy benefits. Available remedies may include the insurance benefits owed under the policy, consequential damages (e.g., financial harm from delayed payment), emotional distress, attorney fees, and punitive damages. Some states also provide statutory penalties or allow recovery of treble damages.
Frequently Asked Questions
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Where this applies: Contingency fee rules are set state by state. Check your own state's rules before acting.
Sources for this page
Every rule stated above is based on the primary sources below. Each link goes to the legislation, court rule or regulator itself so you can check it. Last verified 2 August 2026.
- ABA Model Rule 1.5 (Fees)
Model, not law. Each state adopts its own version. Rule 1.5(d) bars contingency fees in most domestic relations matters and in criminal defence.
- Cornell LII — contingency fee
- Federal Rule of Civil Procedure 54(d) (costs to the prevailing party)
A losing plaintiff may be ordered to pay the defendant's taxable costs. There is no US equivalent of QOCS.
Who wrote and checked this page
- Written and published by
- Edward & Amaury Solicitors (Edward & Amaury Ltd, company no. 12195443), regulated by the Solicitors Regulation Authority under no. 800525.
- Legal review
- This page has not yet been through independent legal review. It is written from the primary sources listed below, which you can check directly.
- Review dates
- Last reviewed 2 August 2026. Next review due 2 February 2027.
Fee rules change. California’s medical malpractice fee limits changed on 1 January 2023, and the QOCS rules in England and Wales changed on 6 April 2023. If you spot something out of date, tell us — we publish corrections.