In order to establish a claim for bad faith, a plaintiff must show an absence of a reasonable basis for denying the benefits of the insurance policy and the insurer's knowledge or reckless disregard of the lack of a reasonable basis for denying the claim. If a reasonable basis for denial actually exists, the insurer cannot be held liable in an action based on the tort of bad faith. An insured may also or aternatively have a cause of action against the insurer for bad faith based on statute. The purpose of the statute must be determined, though, because some statutes do not grant the insured a private cause of action against the insurer. Rather, some statutes merely call for administrative penalties to be assessed against the insurer by the state.
Some statutes do allow an insured to bring a private cause of action against an insurer.
A few of these statutes broadly prohibit bad faith conduct without specifically defining what constitutes bad faith. In this case, the state courts are left to define bad faith. When adopting such an act, a state legislature has the option of creating a private cause of action. For example, the Florida legislature enacted Fla. Stat. Section 624.155 which expressly authorizes a private civil action for damages against an insurer who commits various unfair claims settlement practices.