CloudLex logo

What Is Bad Faith?

what is bad faith?

Bad faith refers to dealing with others deviously and even fraudulently and violates an implied condition that you are negotiating in the spirit of fairness. As an implied condition, dealing in bad faith may give rise to a cause of action in most states.  

Bad faith acts are circumstance specific but include some of the following:

  • Maliciously failing to fulfill legal or contractual obligations
  • Willfully misleading another
  • Undertaking a contractual obligation with no means or intention to fulfill it
  • Violating basic standards of fairness, decency, and reasonableness in dealing with others.
  • Bad faith suits arise from a diversity of facts; as a lawyer, you can expect them in your practice. Law firm workflow software will help you deal with these satisfactorily while keeping you on top of your other work.
  • Bad faith is being dishonest in dealing with others and is a breach of an implied term

What is a bad faith lawsuit?

A bad faith lawsuit is a civil suit for damages brought by the plaintiff against the defendant because the defendant has breached a legal or contractual duty to act in good faith towards the plaintiff, occasioning their loss.

Bad faith lawsuits come under the statute of limitations, and you must bring your claim within the stipulated time or lose your right to compensation. It differs by state jurisdiction, but speed is of the essence.

Matter management software makes it easier for a law firm to manage documentary evidence, which may be instrumental in the quicker institution of a bad faith claim.

  • A bad faith claim arises from a breach of implicit duty to act fairly by the defendant towards the plaintiff
  • Find out what the stipulated period of limitation is in your jurisdiction so that you do not lose your cause of action through a delay

Bad Faith vs. Willful misconduct

Willful misconduct is a form of subjective bad faith. It is action or failure to act despite a duty to do so, in full appreciation of the consequences, but intending them or being indifferent as to whether they come about.

Bad faith carries the notion that the defendant acted maliciously and often requires you to allege a specific set of facts that the defendant acted in bad faith.

Since both bad faith and willful misconduct contain the element of malice or recklessness, courts may impose punitive damages in social interest.

  • Willful misconduct is only a part of what subject bad faith is.
  • Both bad faith and willful misconduct contain the element of intention or recklessness.

What is a bad faith argument?

A bad faith argument is one made in full knowledge of its falsity and to intentionally and unfairly come over another person. If made in support of a frivolous suit, it can very well amount to subverting the course of justice.

In negotiations, a bad faith argument is made without genuine intention to come to an agreement but with an ulterior motive. Proof that a party was carrying on negotiations with an ulterior motive can help sustain a claim for bad faith.

  • A bad faith argument is one made to further a frivolous cause or to disguise the dishonest end of a negotiation
  • The law doesn’t appreciate that, and it may result in punitive damages

What is bad faith insurance?

Bad faith insurance is a tort that an insurer commits by unreasonably reneging on a duty to the insured. An insurer is implicitly bound to deal in good faith and somewhat with the insured. If the insured risk should befall the insured, they expect to be compensated according to the covenant.

Failure to compensate may amount to a breach of contract or the tort of bad faith insurance.

A broad range of facts can give rise to bad faith insurance. However, here are some that the courts have established to constitute the tort:

  • Unreasonably refusing to pay out a good claim
  • Intentionally attempting to pay a policyholder less than a claim is worth
  • Denying a claim without giving a reason
  • Delaying or outright denying claim decisions after arbitration
  • Misrepresenting the law or the language in the policy
  • Unreasonably refusing to defend the policyholder against a claim by a third party
  • Failing to investigate thoroughly and quickly a policyholder’s claim, to the holder’s detriment
  • Acting threateningly towards the claimant, for example, by threatening not to pay.

States have various laws under which suits for bad faith insurance claims can be brought, though it is recognized that California sets the pace in this respect.

To prove bad faith insurance requires evidence from expert witnesses, the company’s policy, and the claimant’s record.

Bad faith insurance may delay timely assistance, especially in personal injury claims. Personal injury case management software helps organize the process of prosecuting claims so that your clients can be quickly compensated to get the help they need.

  • An insurance company owes the policyholder an implicit duty to deal with them fairly
  • Failure to do so may amount to the tort bad faith insurance, against which most states legislate

Product liability lawsuit

The law has long established that the consumer of a defective product is entitled to compensation from the manufacturer. The manufacturer means any person along the production and supply chain who has breached their duty of care.

Liability for defective products rests on three duties:

  • Negligence – here, the defendant anticipates that the plaintiff is of a class of persons whom their actions may harm and to whom the defendant owes a duty of care
  • The strict liability imposed by law in which the defendant’s malice or lack thereof is irrelevant
  • Breach of warranty of fitness – where explicitly or implicitly, the defendant warrants that the product is fit and safe for the purpose

Breach of any of these duties gives rise to a cause for action. The defects that create liability may either be design defects, manufacturer defects, or marketing defects.

What is apparent is that the same set of facts may create liability under different areas of the law. For your practice, the same file may fall under different lawyers.

Legal calendaring software effectively keeps track of all this and enhances cooperation amongst your team so that you deal with every case thoroughly.

  • The plaintiff is entitled to compensation from the defendant for harm occasioned by the use of the defendant’s product
  • Negligence, strict liability, and breach of warranty are the three types of product liability for manufacturer or supplier defects

CloudLex has a suite of software that can make your law practice more efficient and profitable. Request a demo of CloudLex and see all we have on offer for you.

See CloudLex in action

Discover why thousands of PI attorneys choose CloudLex

Whether you're a new firm branching out or are an established national practice, our diverse range of custom packages caters to the specific needs of personal injury law firms, ensuring you have the precise tools to optimize your operations, increase productivity and deliver superior client experiences.

Try CloudLex