247SimpleTests
Insurance · Bad Faith and Ethics

What is 'bad faith' in insurance claims handling?

  1. A An insured lying on their application
  2. B An insurer failing to act reasonably and in good faith in investigating, evaluating, or paying a covered claim — a violation that exposes the insurer to extra-contractual damages
  3. C An adjuster making a small mistake in valuation
  4. D Denying any disputed claim

Why this is the answer

Insurance bad faith is a legal claim against an insurer for unreasonable handling of a covered claim. Common bad faith acts: failing to investigate promptly; denying claims without adequate investigation; misrepresenting policy provisions; offering unconscionably low settlements; unreasonably delaying payment. In addition to the policy benefits owed, bad faith can result in extra-contractual damages (attorney fees, consequential damages, punitive damages in egregious cases). Adjusters must handle every claim reasonably and document their reasoning thoroughly.
Source: Adjuster Exam, Bad Faith Claims Handling

Practice more questions

This question is from our Insurance License Practice Tests practice test. Take the full practice test to test your knowledge across all Bad Faith and Ethics and other topics.

Take the Insurance Adjuster practice test →

New to this exam? Our Insurance exam guide explains the format, scoring, and how to prepare.

Related questions

Bad Faith and Ethics

What are common examples of insurer 'bad faith' in claim handling?

 Bad Faith and Ethics

What is the 'Stowers Doctrine' (or its equivalent in other states)?

 Bad Faith and Ethics

What is 'unfair claims settlement practices' under state insurance law?

 Bad Faith and Ethics

Which adjuster behavior is MOST likely to constitute bad faith claims handling?

State-specific guides

Need information for your state? Our state guides cover local requirements, fees, and what to expect on exam day.

California Texas Florida New York Pennsylvania Illinois Ohio Georgia

Recommended study materials

Study guide

Life & Health Insurance License Exam Manual (Kaplan)

Kaplan's comprehensive life and health producer licensing prep with chapter quizzes and full practice exams.

View on Amazon Study guide

Property & Casualty Insurance License Exam Manual (Kaplan)

Personal and commercial lines, policy structure, and state law concepts for P&C producer licensing.

View on Amazon Study guide

Insurance Adjuster Licensing Exam Prep (Xcel Solutions)

State adjuster exam prep covering policy interpretation, investigation, valuation, and claims handling.

View on Amazon

As an Amazon Associate, 247SimpleTests earns from qualifying purchases. Recommendations are chosen by our editorial team for genuine relevance to this exam. Full disclosure →