Insurance bad-faith claims can arise when an insurer wrongfully delays, underpays, or denies coverage owed under a business insurance policy. While every dispute follows its own path, most bad-faith lawsuits move through several stages, from the initial claim investigation through settlement negotiations, discovery, and potentially trial.
What Is Bad-Faith Insurance?
Insurance companies owe policyholders a legal duty to act fairly and reasonably when handling claims. A bad-faith dispute may occur when an insurer unreasonably refuses to investigate a claim, delays payment without justification, misrepresents policy terms, or fails to honor valid coverage obligations.
For businesses, these disputes frequently involve commercial property policies, business interruption claims, liability coverage disputes, professional liability policies, or denied defense obligations. Because insurers control much of the claims process, policyholders can face substantial financial pressure while waiting for coverage.
Working with a lawyer is paramount to interpreting complex policy language, preserving critical evidence of insurer misconduct, and pushing back against delay tactics that can disrupt your business operations and cash flow.
5 Stages of Insurance Bad-Faith Litigation
When a business pays substantial premiums for commercial general liability (CGL), directors and officers (D&O), or property insurance, the insurer is expected to step up when disaster strikes. Unfortunately, insurance companies are notorious for prioritizing their own profits instead of honoring their contractual obligations to policyholders.
In these cases, a powerful recourse for business owners is filing an insurance bad-faith lawsuit for breach of the implied covenant of good faith and fair dealing. Because corporate insurers have vast legal resources designed to stall litigation, understanding the legal timeline is crucial for keeping your operations secure while pursuing justice.
Below is a general overview of insurance bad-faith litigation:
1. Pre-Litigation Demands & Filing the Complaint
Before formally entering the courtroom, your lawyer may send a pre-litigation demand letter to the insurance company detailing the terms of your commercial policy and how the insurer’s actions constitute bad faith under state law.
If the insurer refuses to act reasonably, your attorney can draft and file a complaint in civil court that formally initiates the lawsuit, outlines your business’s damages, and specifies the bad-faith allegations involved.
2. The Insurer’s Response & Initial Motions (Months 1-3)
Once served, the insurance company has 30 days to respond. In commercial bad-faith cases, insurers rarely just admit or deny the claims. Instead, their legal teams often file a “Demurrer” or a Motion to Strike.
These aggressive procedural maneuvers are designed to dismiss cases on technical grounds before they even begin. A business litigation attorney can help anticipate delay tactics and file an opposition so your bad-faith claim can proceed on its own merits.
3. The Discovery Process (Months 4-12+)
Discovery is the longest, most intensive, and arguably the most important phase of an insurance bad-faith lawsuit. This is where your legal team forces the insurance company to hand over the internal documentation that proves their bad faith.
During this phase, both sides may exchange evidence through:
- Interrogatories. Written questions that the insurer’s adjusters and executives must answer under oath.
- Requests for production. Demands for the insurer’s internal claim files, emails, claims manuals, and performance review metrics.
- Depositions. Sworn in-person interviews where your lawyer questions the claims adjusters, investigators, and corporate representatives.
4. Summary Judgment & Alternative Dispute Resolution (Months 12-18)
After discovery closes, the insurance company will usually file a Motion for Summary Judgment asking the judge to rule in their favor and avoid a trial. Your lawyer can counter this request by presenting the evidence gathered during discovery.
At this stage, courts may require the parties to engage in alternative dispute resolution (ADR). Insurers will usually offer a settlement at this time to protect their public reputation and avoid having their bad-faith practices exposed in an open courtroom.
5. Trial and Verdict (Months 18-24+)
If the insurance company refuses to offer a fair settlement that covers your business's operational losses, attorney’s fees, and potential punitive damages, the case proceeds to litigation.
During a trial, your legal team will present witnesses, internal insurance documents, and expert testimony to a judge or jury. The goal is to prove not only that the insurer breached the contract, but that they did so with conscious disregard for your rights.
A successful bad-faith verdict can result in the insurer paying the original claim amount, as well as economic losses and non-economic damages. In severe cases, you may also recover punitive damages intended to punish severe corporate misconduct.
Why Los Angeles Businesses Trust Our Litigation Firm
When you’re taking on a massive corporate insurance carrier, you need a law firm that refuses to be intimidated by aggressive defense tactics or complex policy language. At The Mirkhan Law Firm, we approach every case with a trial-ready strategy from day one. Our attorneys represent businesses and employers in a variety of high-stakes civil and business litigation matters, meaning we intimately understand how an unpaid commercial claim can threaten your payroll, operations, and legacy.
Don’t let a bad-faith insurer dictate your business’s future. Call (310) 504-1884 to schedule a consultation with our proven trial lawyers.