Category: Claims handling · Reviewed by Jake Leat, Associate Director · Last reviewed 2026-06-11
Bad faith claims handling describes insurer conduct that falls below the standards of good faith, fair dealing and proper investigation expected of a reasonable insurer — a concept of common law origin partly displaced and partly reinforced by the Insurance Act 2015.
“Bad faith” is a familiar concept in US insurance law, where it has a developed statutory and case-law life. In English law it has historically had a narrower role — the historic duty of utmost good faith was reciprocal and ran from policyholder to insurer as much as the reverse. The Insurance Act 2015 reformed this, replacing the historic “utmost good faith” duty in section 14 and introducing the section 13A duty on insurer payment timing.
Modern English usage of “bad faith claims handling” describes the range of insurer conduct that breaches the section 13A duty, the implied terms of the policy, the requirements of ICOBS and the Consumer Duty, or the general principles of fair dealing. The phrase is descriptive rather than legally precise.
The framework includes:
For regulatory purposes, bad-faith handling can attract FCA censure under PRIN 6, the Consumer Duty, ICOBS 8 and the SUP rules on senior management responsibility (SMCR).
The FOS has its own approach to insurer conduct: complaints about delayed handling, poor communication, unreasonable demand for information or unreasonable refusal of cover are dealt with under the fair-and-reasonable jurisdiction in DISP 3.
Bad-faith conduct manifests in identifiable patterns:
Where these patterns appear, the policyholder has multiple routes:
For consumer policyholders, the FOS is the practical primary forum. The FOS regularly criticises insurer conduct and awards compensation for distress and inconvenience alongside the substantive recovery.
For commercial policyholders, court litigation under section 13A is the principal route. The cost of litigation deters many commercial section 13A claims, but the threat shapes insurer behaviour.
The FCA’s supervisory approach is increasingly focused on conduct outcomes. Thematic reviews of claims handling have highlighted systemic problems in particular lines (Covid-19 BI was the most prominent recent example, leading to the FCA Test Case in 2020-2021). The FCA’s pricing-fairness rules (in ICOBS 6A) extend to claims handling: insurers cannot offer worse claims service to certain customer cohorts.
“Wilful” bad faith — deliberate conduct intended to disadvantage the policyholder.
“Reckless” bad faith — conduct in conscious disregard of the policyholder’s interests.
“Negligent” bad faith — conduct falling below the standards of a reasonable insurer without specific intent.
“Constructive” bad faith — outcomes that look like bad faith even where there is no intent (organisational failure, resource constraints, system issues).
“Vexatious refusal” — the historical phrase for refusal of cover on insubstantial grounds; still used in some contexts.
A policyholder’s £900,000 BI claim is repeatedly delayed by an insurer over twelve months. The insurer’s conduct includes:
The policyholder pursues:
The insurer’s senior management implements a review of the claims operation. The FCA, separately reviewing the line’s claims handling, identifies the pattern as part of a thematic concern and engages with the insurer’s claims function on remediation. The insurer’s annual MIPRU 8 conduct disclosure references the issue.
By Matt Bartlett, Director, on 2026-06-11. Next review: 2026-12-11.
This entry is part of the Apex Insurance Wiki. Last reviewed by Matt Bartlett on 2026-06-11. Apex Insurance Brokers Limited, FCA FRN 724952, Companies House 07014570. Not regulated advice — consult your broker on your specific position.
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