Insurance bad faith occurs in first-party and third-party contexts. A first-party example would be your homeowner’s insurance company refusing to pay for damage from a tree falling on your house. A third-party claim would arise if your liability insurer failed to defend you in a lawsuit and/or failed to indemnify you (pay any monetary damages resulting from the lawsuit). Some examples of insurance bad faith would be:
Making unreasonable interpretations of an insurance policy
Unnecessary delays in handling claims
Inadequate investigation
Refusing to defend a lawsuit
Threatening an insured policyholder
Refusing to make a reasonable settlement offer in a lawsuit