Insurance Bad Faith Claims

When Does Insurance Bad Faith Merit Punitive Damages? 

Insurance bad faith occurs when an insurer violates the implied duty of good faith and fair dealing, meaning the obligation to treat its policyholder’s claim fairly and honestly. In such cases, the insurer may be liable for compensatory damages, which are the benefits owed. This can mean you receive compensation for out-of-pocket losses, interest, legal fees, and more. However, in certain extreme cases, when misconduct exceeds routine error, the policyholder may also seek punitive damages. Punitive damages are an extra layer of recovery designed not just to compensate, but to punish an insurer’s particularly egregious conduct and deter similar misconduct in the future. 

At DL Law Group, we aim not only to win what the insurer owes you but also to hold insurers accountable so that those who act in bad faith do not continue their unfair practices against you or others. In cases where the insurer’s behavior clears the high legal bar for punitive damages, we will pursue them. 

Our goal is to clearly explain the legal standards that govern punitive damages in bad faith insurance claims, including what types of insurer misconduct typically qualify, how state law defines or limits these damages, and how we work to identify and prove that level of egregious behavior in your case. At DL Law Group, we are committed to standing by your side and fighting for justice, especially when an insurer has acted with intentional, reckless, or malicious disregard for your rights. You deserve accountability, and we’re here to help you pursue it. 

When Bad Faith Justifies Punitive Damages 

Punitive damages are reserved for cases in which the insurer's conduct goes beyond a simple error or poor judgment. The law generally requires that the insurer act with fraud, malice, or oppression (or equivalent concepts) toward the policyholder. In California, for example, punitive damages may be awarded where the insurer acts with “willful, malicious, or fraudulent conduct” in the handling of a claim.   

So, What Is Egregious Behavior? 

“Egregious” or “reckless” behavior is behavior that should shock the conscience or demonstrate a deliberate disregard for the insured’s rights. Some examples that we often see in our work include: 

• Systematic or repeated denial of valid claims for financial advantage, not based on proper investigation. 
• Endless or abusive delay tactics without meaningful evaluation of evidence, to wear down the insured. 
• Concealment or destruction of internal documents, emails, or adjuster notes to hide wrongful conduct. 
• Misrepresenting policy terms intentionally, covering up exclusions, or twisting definitions to avoid payout. 
• Pressure or threats toward the insured to force acceptance of substandard offers. 
• Ratification of misconduct by senior management or executives, approving wrongdoing at a high level. 
• Behavior amounting to fraud or deceit, such as deliberately omitting a known fact or promise. 

In such a case, punitive damages serve to penalize the insurer for misconduct and deter both them and others from repeating similar abuse.   

The fact that many insurers deny or delay claims does not alone justify punitive damages. It is only when the insurer acts with a culpable mental state of malice, fraud, or oppression that punitive relief becomes available. 

How State Law and Court Standards Limit or Define Punitive Damages 

The right to punitive damages, and how large they may be, varies depending on jurisdiction and statutory or constitutional limits. Some key constraints and principles include: 

“Clear and Convincing” Evidence Standard  

In many states, punitive damages may only be awarded if the policyholder proves by clear and convincing evidence that the insurer engages in malice, fraud, or oppression, not simply negligence. In California, courts require a higher standard in bad faith cases. 

Due Process Constraints & Proportionality  

Punitive awards must be reasonable and proportionate to the harm suffered and the severity of the wrongdoing. A punitive award that is “grossly excessive” may be reduced on appeal under constitutional principles such as the Due Process Clause. Some courts look at ratios between punitive and compensatory damages as a guide. 

No Insurance Coverage for Punitive Damages in Many Cases  

Because punitive damages are meant to punish, many states disallow or restrict insurance coverage for them, so that the insurer cannot simply absorb them as a cost of business.   

Jurisdictional and Statutory Limits 

Some states impose caps or special rules on punitive damages; in some cases, limiting the multiplier or requiring notable findings by juries. The availability of punitive damages depends on local statute and case law.   

Because of these constraints, not every bad faith case will support punitive damages, but in the proper case with strong evidence, punitive recovery may be justified. 

How DL Law Group Helps You Make the Case for Punitive Damages 

Proving punitive damages requires more than showing you were wronged; you must uncover evidence that demonstrates malicious or oppressive intent. DL Law Group brings experience, resources, and strategy to build that proof. Here is how we help: 

1. In-Depth Investigation and Discovery 

We will seek internal insurer documents, emails, adjuster notes or memos, internal training materials, internal audits or reviews, and communications that may show discriminatory treatment or a pattern of misconduct. These documents often reveal how decisions were made behind the scenes. 

2. Depositions and Testimony 

We take sworn testimony from adjusters, supervisors, executives, or internal reviewers to expose how they made choices, what pressures they were under, and how they understood their own conduct. Contradictory statements often strengthen a punitive claim. 

3. Expert Analysis 

We may engage experts in insurance practices, actuarial modeling, or industry standards to show how the conduct deviated from what a reasonable insurer should do, highlighting willful misconduct or gross disregard. 

4. Linking Conduct to Malice, Fraud, or Oppression 

We frame your case not simply as a denial, but as purposeful misconduct: for example, knowingly delaying to force a settlement, misrepresenting terms purposely, or burying evidence. The more direct the link to an evil motive, the stronger the punitive claim. 

5. Negotiation and Leverage 

When an insurer sees strong evidence of liability for punitive damages, it often becomes more motivated to settle reasonably. Our firm’s reputation for pursuing serious litigation helps put pressure on insurers to avoid trial. 

6. Trial Advocacy and Appeals 

We bring punitive claims before juries or judges, arguing both why punitive damages should apply and what amount is justified. If the award is excessive or denied, we defend the result on appeal or advocate for a remittitur adjustment. 

We only pursue punitive damages when the facts support it and when you deserve not just compensation, but deterrent justice. 

Why Pursuing Punitive Damages May Matter to You 

• Justice Beyond Recovery: Punitive damages recognize wrongdoing (often publicly too), not just financial loss. 
• Deterrence: A meaningful punitive award discourages the insurer from abusing policyholders in other cases. 
• More substantial Settlements: Potential for punitive damages raises the stakes and can drive insurers to offer full value earlier. 
• Accountability: It helps hold insurers publicly accountable, especially when their misconduct is widespread. 

When your case has the merit for punitive relief, we will evaluate and pursue it, but only if justified by evidence and law. 

If you believe your insurer may have acted with malice, fraud, oppression, or if their behavior seems more than mere, poor judgment, don’t wait. Contact DL Law Group for a free consultation and let us assess whether your case may justify punitive damages. We work on a contingency fee basis, so you pay nothing unless we recover it for you. 

You deserve a firm that will push back hard, and if necessary, take the fight all the way to hold insurers accountable. Let us help you make your claim a force for change.