What is Bad Faith in Insurance? When most people buy insurance, they hope they never need it. However, life happens. When it does, it often results in damages or injuries that should be covered by insurance. That policy is a contract between the insurer and the customer. If the customer believes the insurer isn't acting within the bounds of that contract, then they may consult with an attorney about a bad faith insurance matter. A bad faith insurance dispute can arise in numerous ways and can involve any kind of policy. Life insurance, automobile insurance, business insurance and homeowner's insurance are just a few examples. Usually, the policy holder suffers an accident or loss, prompting them to file a claim.