What Is a Bad Faith Demand Letter and When Should a Public Adjuster Send One?
A bad faith demand letter is a formal written document that alleges an insurance carrier has violated state bad faith statutes in its handling of a claim. Unlike a standard demand letter — which simply requests payment of a specific amount — a bad faith demand letter puts the carrier on notice that its conduct has crossed a legal threshold, and that the insured is prepared to pursue extracontractual remedies if the claim is not resolved.
Bad faith demand letters are among the most powerful tools in a public adjuster's arsenal, but they must be used correctly. Sending one prematurely or without proper documentation can undermine the claim. Sending one at the right time, with the right citations, can change the entire dynamic of a negotiation.
What Constitutes Insurance Bad Faith?
Insurance bad faith occurs when a carrier fails to handle a claim in good faith — meaning it fails to investigate promptly, fails to pay or deny within statutory timeframes, makes unreasonable denials, or engages in conduct designed to pressure the insured into accepting less than they are owed. Every state has statutes that define bad faith and establish the carrier's obligations. The most commonly cited include Florida Statute 624.155, Texas Insurance Code Chapter 541, Louisiana Revised Statute 22:1892, and Colorado Revised Statute 10-3-1115.
Standard Demand Letter vs. Bad Faith Demand Letter
A standard demand letter requests payment of the claim amount. A bad faith demand letter does that and more — it alleges specific statutory violations, documents the carrier's conduct that constitutes bad faith, and demands both the claim amount and any extracontractual damages available under state law. In states with strong bad faith statutes, those extracontractual damages can include attorney's fees, court costs, and in some cases, punitive damages.
When to Send a Bad Faith Demand Letter
A bad faith demand letter is appropriate when the carrier has violated a statutory deadline for acknowledging, investigating, or paying the claim; when the carrier has made an unreasonable denial that contradicts the policy language; when the carrier has failed to conduct a reasonable investigation; or when the carrier's conduct demonstrates a pattern of delay or obstruction. The letter should be sent after the adjuster has documented the carrier's conduct in writing and confirmed that the applicable statutory threshold has been met.
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PublicAdjusterTool's Bad Faith Demand Letter generator produces a state-specific bad faith demand letter with the correct statutory citations automatically included based on the claim's state. Try it free.
See also: How to Write a Bad Faith Demand Letter, What Is a Demand Letter?, What Is a Negotiation Response Letter?.
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