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A bad-faith claim arises when the insurer denies or delays your claim unreasonably and without proper cause. When this happens, the insurer violates the duty of good faith and fair dealing that is inherent in every insurance policy. Because of the special relationship between the insurer and its insureds, such a violation can entitle the policyholder to a wider array of damages than those that are available on a typical breach-of-contract claim.
If an insurance company violates that covenant, the insured person (or "policyholder") may sue the company on a tort claim in addition to a standard breach of contract claim. The contract-tort distinction is significant because as a matter of public policy, punitive or exemplary damages are unavailable for contract claims, but are available for tort claims.
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