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Insurance · Bad Faith and Ethics

What constitutes 'bad faith' claims handling by an insurer or adjuster?

Reviewed by Jordan Morley, Editorial Lead at 247SimpleTests. Written by the 247SimpleTests Editorial Team from the official source material cited on every question.

Correct answer

Unreasonable conduct in handling a claim — such as unjustified denial, unreasonable delay, failure to investigate properly, or lowball offers without basis — that breaches the duty of good faith and fair dealing

  1. A Unreasonable conduct in handling a claim — such as unjustified denial, unreasonable delay, failure to investigate properly, or lowball offers without basis — that breaches the duty of good faith and fair dealing
  2. B Paying a claim promptly
  3. C Investigating a claim thoroughly
  4. D Requesting documentation

Why this is the answer

Bad faith refers to an insurer's or adjuster's unreasonable or unfair conduct in handling a claim, breaching the implied duty of good faith and fair dealing owed to the insured. Examples include denying a valid claim without a reasonable basis, unreasonably delaying investigation or payment, failing to conduct a proper investigation, misrepresenting policy provisions, or making lowball offers not supported by the facts. Bad-faith conduct can expose the insurer to damages beyond the policy limits, including in some cases punitive damages. Proper, prompt, fair, and well-documented claims handling avoids bad faith. Understanding what constitutes bad faith is critical content for the adjuster exam.
Source: NAIC Adjuster, Bad Faith

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About this topic: Bad Faith and Ethics

Bad faith and ethics questions cover the insurer's duty of good faith, the conduct that unfair-claims-practice laws prohibit, and the consequences — extra-contractual damages — when a claim is handled unfairly. This is one of 7 Insurance Adjuster questions on bad faith and ethics, each with a full explanation on a single study page.

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

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