What is insurance bad faith?

An insurance policy is a contract between the policy holder and the insurance company. When an insurance company fails to honor that contract, it’s not only in breach of contract, but it’s also legally acting in “bad faith”. That means that in addition to paying you the compensation you were originally owed, the company must pay you for any damages caused by the delay or denial of benefits, including pain and suffering. These punitive damages act as an incentive for insurance companies to honor their contracts in the first place.