Yes, personal injury lawyers regularly sue insurance companies when they act unfairly or deny valid claims. In fact, insurance companies receive thousands of lawsuits each year related to bad faith practices and wrongful claim denials. Studies show that nearly one in five insurance claims are initially denied, yet many of these denials can be challenged in court. This creates significant opportunities for injured people to recover compensation they deserve—but only if they understand how the legal system works.
What You’ll Learn
🔍 How insurance companies get sued – When, why, and by whom they end up in court
💰 Bad faith practices explained – The sneaky tactics insurers use to avoid paying what they owe
⚖️ The difference between suing the at-fault driver versus the insurance company – Why this matters for your recovery
📋 Your options when insurance denies your claim – What steps to take and deadlines you face
🏛️ State-by-state rules – How the law changes depending on where you live and where your accident happened
Understanding the Two Types of Insurance Claims
When you file a personal injury claim, you’re dealing with one of two situations. A first-party claim means you’re asking your own insurance company to pay for your injuries. A third-party claim means you’re asking the other person’s insurance company to pay because their client caused your injuries.
Think of it like this: If you slip in someone else’s store and break your arm, that store’s liability insurance should cover your medical bills. That’s a third-party claim. But if you are the store owner and your customer sues you, then you’re filing a claim with your own liability insurance. That’s a first-party situation.
This difference matters a lot because the rules for suing the insurance company change based on which type of claim you have. Courts treat insurance companies differently depending on whether they’re defending their own customer or fighting against a total stranger.
Why Personal Injury Lawyers Sue Insurance Companies
Insurance companies don’t exist to help people recover from injuries. They exist to make money for their owners and shareholders. This creates a built-in conflict of interest. The insurance company makes more money when it pays less money to injured people.
Because of this problem, all 50 states have created bad faith laws. These laws say that insurance companies must treat their customers (and claimants) fairly. They cannot just deny claims for no good reason or delay payments to frustrate people into giving up. When insurance companies break these rules, injured people can sue them.
The Legal Duty Insurance Companies Owe
Every insurance policy is a contract. When you buy insurance, the company promises to pay valid claims in good faith and within a reasonable time. Federal law and state laws both create what lawyers call an “implied duty of good faith and fair dealing.”
This duty means the insurance company must:
- Investigate your claim thoroughly and fairly
- Pay valid claims promptly (usually within 30 to 45 days of receiving proof of loss)
- Give you a clear reason if they deny your claim
- Make settlement offers based on the real value of your case
- Not use tricks or misleading statements to avoid paying
When insurance companies break these duties, personal injury lawyers can sue them on behalf of their injured clients.
First-Party Bad Faith Claims: Suing Your Own Insurance Company
A first-party bad faith claim is when you sue your own insurance company for mistreating you. This happens when the company denies your claim, delays paying you, or offers far too little money without good reason.
Federal law gives these claims strong protections. In most states, if you can prove the insurance company acted in bad faith, you can recover damages that go beyond the policy limits, including attorney’s fees. This is huge because it means the insurance company could owe you more than the actual policy limit if they behaved unreasonably.
Example: Car Accident with Denied Medical Payments
Sarah was hit by another car while driving on a busy highway. She had her own medical payments coverage (sometimes called “med pay”) that should pay up to $10,000 of her medical bills regardless of who was at fault.
After her accident, Sarah submitted $8,000 in medical bills to her insurance company within 30 days. The insurance company never responded. After three months, Sarah called repeatedly. The adjuster kept saying “we’re still investigating.” After six months with no payment, Sarah’s lawyer sent a demand letter. Only then did the company finally deny the claim, but they gave no real reason—just a vague statement about “insufficient documentation.”
Sarah’s lawyer sued for bad faith. The case was settled for $25,000—more than double the original policy limit—because the insurance company clearly violated its duty to investigate and pay promptly.
Why Insurance Companies Deny Valid Claims
Common reasons insurance companies give for denying first-party claims include:
- Policy exclusions they claim apply to your situation
- Claims that you didn’t follow proper procedures for reporting the accident
- Arguments that your injuries don’t match the policy coverage
- Disputes about what caused your injuries
- Accusations of fraud or misrepresentation on the original application
The problem is that many of these denials are dishonest. Studies of insurance bad faith show that insurance companies often misinterpret policy language, overlook evidence supporting coverage, or rely on flimsy excuses to deny claims they should pay.
Third-Party Bad Faith Claims: When the Other Person’s Insurance Acts Unfairly
A third-party bad faith claim happens when the insurance company of the person who hurt you acts in bad faith. This is trickier because you don’t have a direct contract with that insurance company. However, in many situations, you still have the right to sue them.
In third-party claims, the insurance company has a duty to the injured person (you) to negotiate fairly and make reasonable settlement offers. If they refuse to settle reasonable claims within their policy limits, they can be liable for damages that exceed those limits. This is called the “Stowers doctrine” in Texas and exists in various forms across the country.
Example: Slip and Fall with Unreasonable Settlement Delay
Miguel slipped on a wet floor in a grocery store and broke his leg. The store had liability insurance with a $100,000 policy limit. Miguel’s medical bills, lost wages, and pain and suffering totaled $75,000.
Miguel’s lawyer presented a clear settlement demand of $75,000 within the policy limits. This was a reasonable amount supported by medical records and documentation. However, the store’s insurance company:
- Never responded to the first demand letter
- Took three months to assign an adjuster
- Demanded additional documentation already provided
- Made a lowball offer of only $30,000
After a year of delays and poor communication, Miguel’s lawyer filed a lawsuit. The case went to trial, and a jury awarded Miguel $120,000—more than the policy limit. The insurance company had to pay the entire amount because it unreasonably refused fair settlement offers.
Direct Action Lawsuits: A State-by-State Game
In most states, you cannot sue the other person’s insurance company directly. Instead, you must sue the person who injured you, and the insurance company pays the resulting judgment (if there is one).
However, a handful of states have special laws called direct action statutes. These statutes allow you to sue the insurance company directly without suing the other person first.
The states with direct action statutes are:
| State | Direct Action Available |
|---|---|
| Connecticut | Yes |
| Georgia | Yes |
| Iowa | Yes |
| Kansas | Yes |
| Louisiana | Yes (Limited as of 2024) |
| Nebraska | Yes |
| New Jersey | Yes |
| Rhode Island | Yes |
| Wisconsin | Yes |
| All Other States | No |
Important note about Louisiana: Louisiana historically had broad direct action rights, but effective August 1, 2024, the state dramatically limited who can sue insurance companies directly under Act No. 275. Now Louisiana mostly requires the traditional route of suing the at-fault person first.
How Direct Action Works in Georgia
In Georgia, if you’re injured in a car accident, you have the right to sue the at-fault driver’s insurance company directly in certain situations. This saves time and money because you don’t have to sue the driver first and then wait for a judgment.
To use Georgia’s direct action statute, the accident must:
- Happen inside Georgia
- Involve a vehicle registered and insured in Georgia
- Involve a liability insurance policy issued in Georgia
If these conditions are met, you can file a lawsuit naming the insurance company as the defendant. The driver still must be shown to be at fault, but you’re fighting that battle directly with the insurance company’s lawyers instead of the driver’s lawyers.
The Most Popular Scenarios: What Actually Happens
Scenario 1: Insurance Refuses to Settle Within Policy Limits
| What Happens | What Goes Wrong |
|---|---|
| Injured person suffers real damages from clear negligence | Insurance company makes unreasonably low offers far below damages |
| Lawyer presents settlement demand within policy limits with supporting evidence | Company ignores demand or asks for impossible documentation |
| Case goes to trial because no fair settlement is reached | Jury awards amount above policy limits |
| Insurance company must pay entire judgment, even amount exceeding their policy | Company faces bad faith lawsuit on top of judgment |
This scenario happens constantly. Insurance companies gamble that injured people will accept low offers. When they don’t and the case goes to trial, the company loses big.
Scenario 2: Insurance Denies Valid Claim with No Investigation
| What Happens | What Goes Wrong |
|---|---|
| Person files claim with complete documentation | Insurance company denies claim within days without reviewing evidence |
| Claimant has clear coverage under policy language | Company claims coverage doesn’t apply based on misreading policy |
| Claimant provides additional evidence supporting their position | Company ignores evidence and maintains denial |
| Claimant’s lawyer files lawsuit for bad faith | Insurance company must pay original claim plus bad faith damages |
Insurance companies sometimes deny claims immediately just to see if people will give up. When someone fights back, the company often backs down and pays, but only after causing unnecessary stress and delay.
Scenario 3: Insurance Delays Investigation to Frustrate Claimant
| What Happens | What Goes Wrong |
|---|---|
| Claimant files claim and provides all required documents | Insurance company sits on claim for months without investigating |
| Claimant follows up repeatedly; company always says “still investigating” | No actual investigation takes place; company is just delaying |
| Claimant needs money for medical bills and rent; financial stress builds | Company knows delay will pressure claimant into accepting low offer |
| Claimant’s attorney sends demand letter; company finally responds | Response reveals company never actually investigated at all |
Intentional delay is a classic bad faith tactic. Insurance companies sometimes hope that injured people will become so desperate they’ll accept pennies on the dollar just to get money quickly.
Common Mistakes That Hurt Your Case
Mistake #1: Accepting the First Settlement Offer Too Quickly
What happens: Insurance companies always start low. Their first offer is often 30% to 50% below what your claim is actually worth. If you accept it immediately, you’re leaving money on the table forever.
Why it matters: Once you sign a settlement agreement, you cannot reopen the case. You’re bound by whatever you agreed to, even if you later discover you needed more money. Initial offers are calculated to test your willingness to fight.
Mistake #2: Not Documenting Everything in Writing
What happens: You have verbal conversations with the insurance adjuster, and they promise to do things they later claim they never promised. Without written proof, it’s your word against theirs.
Why it matters: When you eventually file a lawsuit or appeal, you need documented evidence of what the insurance company said and when they said it. Emails are better than nothing, but certified letters are best.
Mistake #3: Missing Deadlines for Appeals or Lawsuits
What happens: Every insurance company has internal appeal deadlines. Every state has statute of limitations deadlines for lawsuits. If you miss these dates, your right to recover is gone forever.
Why it matters: States vary, but most allow you only two to three years from the date of the bad faith conduct to file a lawsuit. Once that deadline passes, courts will throw out your case.
Mistake #4: Talking to Insurance Adjusters Without an Attorney
What happens: Insurance adjusters are trained negotiators. They ask leading questions designed to get you to say things that hurt your claim. They record calls and use your own words against you later.
Why it matters: Everything you say can and will be used to reduce your recovery. Insurance companies employ adjusters specifically trained in tactics to minimize claims. You’re outmatched without legal help.
Mistake #5: Failing to File a Formal Complaint if Initial Appeal Fails
What happens: You appeal the insurance company’s denial through their internal process. They still deny it. You then assume there’s nothing else you can do, so you give up.
Why it matters: Most states allow complaints to the state insurance commissioner or department of insurance. These regulators have power to fine insurance companies and force them to reconsider claims. This step costs nothing and can change the outcome.
Mistake #6: Not Investigating Whether Other Insurance Exists
What happens: The at-fault driver has a standard $25,000 liability policy, but you never discover they also have an umbrella policy with $1 million in coverage.
Why it matters: Umbrella policies cover claims that exceed the main policy limits. If you settle for the policy limit without knowing about umbrella coverage, you lose access to hundreds of thousands of dollars.
How Insurance Companies Misuse Their Rules and Power
Tactic #1: Misinterpreting Policy Language Intentionally
Insurance policies are written with complicated language. Insurance companies sometimes claim this language means coverage doesn’t apply, even when courts would disagree.
Real example: A homeowner’s insurance company denied a water damage claim, claiming water damage is “excluded” from the policy. What the company didn’t mention is that the policy does cover water damage from burst pipes—just not from flooding. The company deliberately misrepresented the policy language to avoid paying.
Tactic #2: Conducting Biased Medical Examinations
Insurance companies hire doctors to evaluate injured people through what’s called an “Independent Medical Examination” (IME). These doctors are chosen and paid by the insurance company, which creates a massive conflict of interest. Studies show these doctors frequently downplay injuries to justify claim denials.
Real example: An injured person needed neck surgery after a serious car accident. Multiple treating doctors recommended surgery. The insurance company’s hired doctor, who spent only 30 minutes with the patient, concluded the injuries weren’t serious enough to require surgery. The insurance company used this biased opinion to deny the claim.
Tactic #3: Demanding Impossible Documentation
Insurance companies sometimes demand documentation that doesn’t exist or is impossible to obtain. They claim the claimant “failed to cooperate” when really the company is making unreasonable demands.
Real example: An insurance company demanded “original receipts” for medical treatment from 15 years ago. When the injured person couldn’t produce these ancient documents, the company denied the claim, claiming lack of cooperation.
Tactic #4: Refusing to Acknowledge Claims Were Even Received
Some insurance companies never formally respond to claims at all. They create a situation where the claimant doesn’t know if the company received the claim, is investigating, or has decided to deny it.
Real example: A person filed a comprehensive claim with all required documentation. After 90 days, they hadn’t heard anything. After 180 days, still nothing. When they finally called, the company claimed they never received the claim, even though they had the person’s policy number and address correct.
Tactic #5: Misrepresenting Coverage to Justify Low Settlements
Insurance companies sometimes lie about policy limits to justify offering less money. They claim the policy has lower limits than it actually does.
Real example: In a Georgia case called Prieto v. Burkett, the insurance company claimed the at-fault driver only had $1 million in coverage. When the plaintiff’s attorney investigated, they discovered the driver had an additional $9 million in umbrella coverage the insurance company intentionally hid. The plaintiff ultimately recovered $10.1 million instead of settling for $1 million.
The Role of Insurance Company Lawyers
Insurance companies hire lawyers to defend themselves and their policyholders. These lawyers represent the insurance company’s interests, not your interests. It’s important to understand whose side they’re on.
When the insurance company hires a lawyer to defend its policyholder in your lawsuit, that lawyer’s job is to minimize the amount the company will have to pay. The lawyer will argue that you weren’t really hurt as badly as you claim, that the policyholder wasn’t really at fault, and that your damages are worth less money than you’re asking for.
Even worse, sometimes these insurance company lawyers also represent the policyholder directly. This creates another conflict of interest because the lawyer might make settlement decisions that benefit the insurance company financially but hurt the policyholder’s long-term interests.
Understanding Policy Limits and When They Don’t Apply
Every insurance policy has maximum dollar amounts called policy limits. For example, an auto insurance policy might have a bodily injury limit of $100,000 per person and $300,000 per accident. This means the insurance company will pay up to those amounts for covered claims.
However, policy limits don’t always protect the insurance company from paying more. When insurance companies act in bad faith, courts can force them to pay amounts that exceed the policy limits.
Example: When Insurance Must Pay Above Policy Limits
Thomas had a car accident with a driver insured for $50,000 in bodily injury coverage. Thomas’s injuries were severe, and his damages totaled $200,000. The insurance company refused to settle for the policy limit ($50,000) even though Thomas’s attorney offered to settle for that amount.
The case went to trial. The jury awarded Thomas $200,000. Because the insurance company refused a reasonable settlement offer within the policy limits, courts held the company liable for the entire $200,000 judgment, not just the $50,000 limit. The company had to pay $150,000 above its policy limit.
This happens because the law says insurance companies have a duty to protect their policyholder by settling reasonable claims within policy limits. When they refuse to do this, they must pay the full judgment.
How to Know When You Have a Bad Faith Claim
You might have a bad faith claim if:
- Insurance unreasonably delays your claim – More than 30 to 45 days passes without payment or clear status update on investigation
- Insurance denies your claim without proper investigation – Company denies claim within days of receiving it without actually investigating
- Insurance offers extremely low settlement – Company offers significantly less than comparable cases or industry standards without good reason
- Insurance misrepresents your policy – Company claims coverage doesn’t apply when policy language appears to cover your situation
- Insurance refuses communication – Company doesn’t respond to calls or letters for extended periods
- Insurance ignores obvious evidence – Company admits receiving evidence supporting your claim but claims it “got lost”
- Insurance refuses to defend against third-party lawsuit – Company refuses to provide lawyer to defend you against lawsuit even though claim appears covered
If you experience several of these situations, you likely have grounds for a bad faith lawsuit against the insurance company in addition to your original injury claim.
The Process of Suing an Insurance Company: Step by Step
Step 1: Demand Letter
Before filing a lawsuit, your attorney will send a formal demand letter to the insurance company. This letter explains exactly why you believe the company acted in bad faith and what damages you’re claiming.
The demand letter gives the insurance company one final chance to fix the problem. Many insurance companies pay claims immediately after receiving a demand letter because they know they acted wrongfully and don’t want to face a lawsuit and bad faith judgment.
The demand letter typically states a deadline for response—often 30 days. If the insurance company doesn’t respond or refuses to pay, your attorney can proceed to filing a lawsuit.
Step 2: File the Complaint
Your attorney files a formal complaint in the appropriate court. The complaint describes:
- What happened (the original accident or loss)
- What the insurance company did wrong
- Which laws the company violated
- What damages you’re seeking
Filing fees vary by state but typically cost $300 to $500. Your attorney will handle all the paperwork and procedures.
Step 3: Serve the Insurance Company
The insurance company must be formally notified that you’re suing them. An attorney or process server delivers legal papers to the company. The company then has a specific time (usually 20 to 30 days) to respond to your lawsuit.
Step 4: Discovery
Both sides exchange documents and information related to the case. This includes:
- The original insurance policy and all policy amendments
- All correspondence between you and the insurance company
- Internal notes and emails from insurance company employees
- Medical records and other evidence related to your injury
- Expert reports and investigative findings
Discovery is where you often find smoking gun evidence. Insurance company internal emails frequently reveal that the company knew they were acting wrongfully but did it anyway to save money.
Step 5: Mediation or Settlement Negotiations
Before trial, most cases settle. Your attorney will negotiate with the insurance company’s lawyers, often with the help of a neutral mediator who tries to help both sides reach agreement.
Many cases settle at this stage because the insurance company sees the strength of your evidence and realizes paying now is better than risking a larger judgment at trial.
Step 6: Trial
If settlement isn’t reached, the case goes to trial. A judge or jury hears evidence from both sides and decides whether the insurance company acted in bad faith and, if so, how much you should be paid.
At trial, you may testify about how the insurance company’s bad faith conduct hurt you. Your attorney presents evidence of the company’s wrongful actions. The insurance company’s lawyer tries to prove the company acted reasonably.
The judge or jury then renders a verdict. If they find bad faith, they decide the amount you should receive. This can include:
- Your original damages (medical bills, lost wages, pain and suffering)
- Additional damages for emotional distress and inconvenience
- Attorney’s fees (the insurance company has to pay your lawyer)
- Punitive damages (extra money to punish the company, available in some states)
State Law Variations: Your Rights Depend on Where You Live
Federal Rules Apply Everywhere
All states follow federal insurance law principles regarding the implied duty of good faith and fair dealing. Insurance companies cannot deny claims without reasonable basis in any state.
State-Specific Protections
However, each state has its own unique rules about bad faith claims. Here are some examples:
California: California law is very protective of policyholders. Insurance companies that refuse to settle reasonable claims within policy limits face not just bad faith liability but can be held liable for the entire judgment against their policyholder plus punitive damages. California courts interpret insurance policies against the insurance company if language is ambiguous.
Florida: Florida allows separate lawsuits for first-party bad faith (against your own insurer) under Florida Statute 624.155. The law requires the insurance company to acknowledge claims within 14 days and to determine coverage within 30 days unless the company needs more information.
North Carolina: North Carolina gives you three years from the date the insurance company acted in bad faith to file a lawsuit. The state allows recovery of attorney’s fees and punitive damages when bad faith is proven.
Texas: Texas recognizes the “Stowers doctrine,” which says insurance companies that unreasonably refuse settlement offers within policy limits must pay judgments in excess of those limits. However, Texas does not allow direct action lawsuits against insurers—you must sue the at-fault driver first.
Nevada: Nevada allows bad faith claims but sets a two-year statute of limitations to file a lawsuit. The clock starts when you know (or should know) the insurance company acted in bad faith.
Wisconsin: Wisconsin requires insurance companies to pay claims within 30 days or pay 12 percent interest per year on the unpaid amount. Unreasonable denials and delays constitute bad faith with a two-year statute of limitations.
Direct Action Considerations
Remember that only nine states have direct action statutes. In all other states, you must follow the traditional route:
- File a lawsuit against the person who injured you
- Get a judgment against them (either through settlement or trial verdict)
- Then pursue bad faith against their insurance company if they acted wrongfully
This extra step makes the process longer and more expensive, which is why many states have been pressured to adopt direct action laws.
Pros and Cons of Suing an Insurance Company
| Advantage | Why This Matters |
|---|---|
| Recovery beyond policy limits | You can receive damages exceeding the original policy limit, sometimes by hundreds of thousands of dollars |
| Attorney fees are covered | Insurance company must pay your lawyer’s fees, so you don’t lose money to legal costs |
| Punitive damages possible | In many states, you can recover extra damages designed to punish the company and deter future bad behavior |
| Pressure other insurers | Winning cases against insurance companies make other companies more likely to treat people fairly |
| Emotional justice | Holding the company accountable can provide satisfaction beyond just the money |
| Access to discovery | Through lawsuits, you can force the insurance company to turn over internal documents that reveal wrongdoing |
| Disadvantage | Why This Matters |
|---|---|
| Takes significant time | Bad faith lawsuits typically take 2 to 5 years from filing to final resolution |
| Expensive upfront costs | Court filing fees, expert witness fees, and investigation costs can reach $10,000 to $50,000 before trial |
| Uncertain outcome | Even with strong evidence, judges and juries sometimes side with insurance companies |
| Insurance company appeals | Winning at trial doesn’t mean the case is over; insurance companies often appeal, extending the process further |
| Limited damages in some states | Some states don’t allow punitive damages or have damage caps that reduce your recovery |
| Requires documentation | You must have written evidence of bad faith; verbal statements and memory alone rarely win cases |
| Insurance company has resources | Insurance companies hire expensive lawyers and can fight you at every step, making the process grueling |
Do’s and Don’ts When Dealing with Insurance Companies
Do’s
Do document everything in writing. Keep a file of all correspondence with the insurance company. Make notes after phone calls including the date, time, person’s name, and what was discussed. Emails are better than phone calls.
Do respond to insurance company requests promptly. Submit requested documentation quickly and completely. This prevents the company from claiming you didn’t cooperate.
Do send demand letters through certified mail. Use the postal service’s certified mail feature so you have proof the insurance company received your letter. Regular mail creates disputes about whether something was received.
Do hire an attorney early. Don’t wait until a claim is denied or delayed for months. Consult an attorney after any serious injury to protect your rights from the start.
Do understand your policy. Read your insurance policy completely before an accident happens. Knowing what coverage you have prevents surprises later.
Do keep medical records organized. Maintain clear records of all medical treatment, expenses, and lost wages related to your injury. These documents prove the value of your claim.
Do file internal appeals if your claim is denied. Most insurance policies require you to follow the company’s internal appeal process before filing a lawsuit.
Don’ts
Don’t accept the first settlement offer. Initial offers are intentionally low. Negotiate, even if you think the offer is fair.
Don’t sign anything without reading completely. Insurance companies sometimes hide bad terms in settlement agreements. Have an attorney review all documents.
Don’t communicate with insurance companies without an attorney. Adjusters are trained to get you to say things that hurt your case. Let your lawyer handle communications.
Don’t miss deadlines. Track all statute of limitations deadlines and internal appeal deadlines. Missing a deadline means losing your right to recover.
Don’t assume the insurance company is being honest. Insurance companies sometimes lie, misrepresent policies, and hide information. Verify everything independently.
Don’t stop pursuing a claim just because it takes time. Bad faith cases move slowly, but persistence pays off. Companies count on people giving up.
Don’t delete any communications. Save all emails, text messages, letters, and voicemails from the insurance company. These are often the best evidence of wrongdoing.
Don’t forget about umbrella policies. Before settling, investigate whether the at-fault party has additional coverage beyond the stated policy limits.
Real-World Examples from Court Cases
Example 1: Geico’s $2.9 Million Bad Faith Judgment
In Florida, a jury found that Geico acted in bad faith by refusing to pay a valid personal injury claim and rejecting multiple reasonable settlement offers. The plaintiff had been hit by an at-fault driver insured by Geico. Despite clear liability and documented injuries, Geico repeatedly:
- Made lowball settlement offers far below the claim’s value
- Demanded unnecessary additional documentation
- Ignored evidence supporting the claim
- Refused to negotiate fairly
The jury awarded the plaintiff $2.9 million, significantly exceeding what Geico had offered to settle for. The company had to pay the entire amount.
Example 2: The Prieto v. Burkett Case – Hidden Umbrella Coverage
In Georgia, the insurance company actively concealed the existence of a $9 million umbrella policy while the plaintiff’s attorney negotiated with the company. The company claimed only $1 million in available coverage existed, hoping the plaintiff would accept a settlement within that lower limit.
When the plaintiff’s attorney discovered the hidden umbrella policy through investigation, they increased the settlement demand to $10 million. The plaintiff ultimately recovered $10.1 million instead of settling for $1 million based on the company’s false representation.
Example 3: Water Damage Denial Overturned
An insurance company denied a homeowner’s water damage claim, claiming water damage was excluded from the policy. The homeowner’s attorney proved that while flood damage was excluded, burst pipe damage was specifically covered. The insurance company had intentionally misrepresented the policy language.
The homeowner sued for bad faith and won. The court ordered the insurance company to pay the original $75,000 claim plus an additional $50,000 for bad faith conduct.
Important Court Rulings That Protect You
The Stowers Doctrine (Texas)
The Texas Supreme Court case G.A. Stowers Furniture Co. v. American Indemnity Co. established that insurance companies must settle reasonable claims within policy limits. If an insurance company refuses to settle within policy limits and the case goes to trial with a judgment exceeding those limits, the insurance company must pay the entire judgment, not just the policy limit.
This case changed insurance law across America because courts in many states adopted similar reasoning. It created real incentive for insurance companies to settle fairly.
The Duty to Defend Rule (California)
California courts established that insurance companies must defend their policyholders against third-party claims as long as the complaint potentially falls within the policy’s coverage. An insurance company cannot refuse to defend just because it believes the claim won’t ultimately be covered.
This rule protects policyholders from being left without legal defense while fighting disputes over coverage. The insurance company must defend first and then argue about coverage later.
The Bad Faith Standard (Multiple States)
Courts have established that insurance companies act in bad faith when they:
- Deny claims without legitimate reason
- Refuse to conduct proper investigations
- Ignore evidence supporting coverage
- Make settlement offers that are obviously unreasonable
- Misrepresent policy terms
- Unreasonably delay investigations or payments
The key word is “unreasonable.” Insurance companies don’t have to pay every claim, but they must treat claims reasonably and fairly.
FAQ Section
❓ Can I sue my own insurance company?
Yes. You can sue your own insurance company if they wrongfully deny, delay, or underpay your claim. This is called a first-party bad faith claim. You must prove the insurance company breached its duty of good faith and fair dealing, typically by providing evidence that the denial was unreasonable.
❓ What is the time limit to sue an insurance company?
It varies by state. Most states allow two to three years from the date of bad faith conduct to file a lawsuit. Some states use a two-year statute of limitations specifically for bad faith claims. Nevada, for example, allows two years. North Carolina allows three years. Check your state’s specific deadline because missing it means losing your right to recover.
❓ Can I get punitive damages in a bad faith lawsuit?
In some states, yes. Many states allow punitive damages (extra money to punish the insurance company) when bad faith is proven. Other states do not. Florida, California, and Texas are among states that allow punitive damages. Check your state’s specific rules.
❓ Do insurance companies have to pay attorney’s fees in bad faith cases?
Usually, yes. Most bad faith laws require the insurance company to pay your attorney’s fees if you win. This means you don’t have to pay your lawyer out of your recovery. Some states cap the amount of fees, while others don’t.
❓ What if I’m in a state without direct action lawsuits?
You must sue the person who injured you first. In non-direct action states, you must file a lawsuit against the person at fault, get a judgment against them, and then pursue a bad faith claim against their insurance company. This is more complicated and takes longer but still works.
❓ Can insurance companies withdraw settlement offers?
Yes, generally they can. Until you formally accept an offer and receive confirmation, insurance companies can withdraw or reduce their offers. However, in some states with strong bad faith protections, withdrawing reasonable offers might constitute bad faith. Always accept settlement offers in writing and get immediate confirmation.
❓ What should I do if insurance denies my claim immediately?
Don’t give up—file an appeal. Insurance companies sometimes deny claims within days to see if you’ll accept the denial without fighting. Follow the appeal process outlined in your policy. If the internal appeal fails, consult an attorney about a bad faith lawsuit.
❓ How much can I recover in a bad faith lawsuit?
It varies significantly. You can recover your original damages (medical bills, lost wages, pain and suffering) plus additional bad faith damages. In cases where the insurance company refused to settle within policy limits, you can recover judgments exceeding the policy limit. Bad faith damages can sometimes equal or exceed your original claim value.
❓ Do I need an attorney to sue an insurance company?
Strongly recommended. Insurance companies hire experienced lawyers and are skilled at fighting claims. Without an attorney, you’re outmatched. Most personal injury attorneys work on contingency, meaning they get paid only if you win or settle. You don’t pay out of pocket.
❓ What evidence do I need to prove bad faith?
Document everything. Keep copies of your insurance policy, all correspondence with the insurance company, your claim documents, medical records, internal appeal letters, and any evidence supporting your position. Email chains and notes about phone calls are especially valuable. Written evidence is much stronger than memory alone.
❓ Can insurance companies retaliate if I sue them?
No—it’s illegal. Insurance companies cannot cancel your policy or raise your rates in retaliation for filing a bad faith claim. State insurance regulations prohibit this type of retaliation. If an insurance company does retaliate, that itself becomes grounds for another lawsuit.
Related reading
- Do Personal Injury Lawyers Handle Property Damage? (w/Examples) + FAQs
- What Can a Personal Injury Lawyer Do for You? (w/Examples) + FAQs
- Should I Get a Personal Injury Lawyer After a Car Accident? (w/Examples) + FAQs
- What Does a Truck Accident Lawyer Do?(w/Examples) + FAQs
- Should I Call Insurance If I’m at Fault? (w/Examples) + FAQs
- Should I Sue My Insurance Company? (w/Examples) + FAQs
- Does Liability Insurance Cover Property Damage? (w/Examples) + FAQs