Types of Bad Faith in Insurance

At VandenBout Law, we understand how frustrating it can be when an insurance company fails to treat you fairly. When you’ve been paying your premiums on time, you expect your insurer to follow through when you need them most. 

Unfortunately, that doesn’t always happen. Some insurance companies act in bad faith, refusing to honor valid claims or dragging out the process for no good reason. These types of bad faith in insurance are more than just red tape; they can seriously disrupt your financial recovery after an accident or loss. In New Mexico, policyholders have legal options to fight back.

What Is Insurance Bad Faith?

Insurance bad faith occurs when an insurer violates its obligation to act fairly and honestly with its policyholder. That obligation is built into every insurance contract, whether for auto, health, homeowner’s, or business coverage. New Mexico law recognizes this duty and provides legal remedies when insurers fail to meet it.

According to New Mexico Statute § 59A-16-30, damages for bad faith actions don’t require paying out of pocket first. In other words, even if you haven’t covered the costs of your loss, the insurance company can still be held liable for failing to act in good faith.

Bad faith isn’t always obvious and can take different forms depending on the insurance relationship. Understanding whether the issue falls under a first-party or third-party claim is key.

First-Party vs. Third-Party Bad Faith Claims

Bad faith by an insurance company generally falls into one of two categories: it either involves your insurer or the insurer of another party. While each type is handled differently, both involve a failure to treat claims fairly or fulfill contractual duties. 

• First-party bad faith refers to misconduct by your insurance provider. This might involve delaying or denying payments, ignoring valid coverage, or failing to investigate your claim correctly.
• Third-party bad faith involves another person’s insurer, typically when they refuse to settle a claim within policy limits, putting their policyholder at financial risk and potentially affecting your ability to collect compensation.

Common Examples of Bad Faith Insurance Practices

Several types of bad faith in insurance appear in everyday claims, and some are easier to recognize than others. While not every denied claim amounts to bad faith, specific tactics cross the line and violate an insurer’s legal obligations. The most common examples include:

• Delays in payment without a valid reason.
• Unreasonable denial of claims that fall within clear policy coverage.
• Lack of communication, including ignoring calls or failing to provide updates.
• Misrepresentation of policy terms, such as inaccurately stating exclusions.

These actions are often designed to pressure policyholders into giving up or settling for less. Identifying these behaviors early can make all the difference in getting the benefits you’re entitled to.

How to Respond If You Suspect Bad Faith

Recognizing the different types of bad faith in insurance is the first step toward protecting yourself. It’s time to take action once you notice signs like unexplained delays or conflicting responses. Here are the steps we recommend:

• Document everything: Keep a thorough record of every interaction with your insurer, including emails, phone calls, letters, and policy updates. This documentation can become key evidence later.

• Ask for clarity in writing: Request a written explanation if your claim is denied or delayed. Getting the insurer’s reasoning on record can reveal whether their position is justified or part of a broader pattern.

• Consider an outside opinion: Independent evaluations from a contractor, appraiser, or attorney can help determine whether your insurer is handling the claim fairly.

• Consult an attorney: Insurance bad faith cases are often complex. A legal professional familiar with New Mexico insurance law can help you understand your rights and options.

Many clients also wonder, can you sue an insurance company for bad faith? The answer depends on the details of your case, but legal action is often possible when misconduct is clear.

Get Help from Vanden Bout Law

When insurance companies don’t play fair, we step in. At VandenBout Law, we help policyholders in Albuquerque and across New Mexico challenge delays, denials, and other types of bad faith in insurance that prevent people from receiving the coverage they’ve paid for. 

Whether the issue involves your insurer or a third-party provider, we know how to confront bad faith tactics and fight for what’s right.

Request a Free Consultation Today

Do you suspect your insurance company is acting in bad faith? We can help. Our team at VandenBout Law will examine your policy to identify potential instances of bad faith, including types of bad faith in insurance, and clearly outline your legal choices.

Call us at (720) 901-2984 to schedule your free consultation. Don’t let delay or denial keep you from what you’re owed. Get support from a team that knows how to hold insurers accountable.

Lawrence VandenBout

Mr. VandenBout has successfully tried multiple cases, he understands that many times the most efficient and effective resolution to a legal dispute occurs outside the courtroom and through the process of mediation. He has been successful in negotiating many favorable settlements for his clients. Mr. VandenBout also utilizes his experience to counsel and assist clients in developing strategies for minimizing the risk of becoming involved in potential legal disputes in the future.

Years of experience: Over 11 years
Recognition: Rising Star 2021, 2022, 2023 & 2024.
Location: Denver, CO