How Insurance Bad Faith Claims Work Under Iowa Law

When you purchase insurance, you’re buying peace of mind. You expect your insurer to stand by its word and honor the policy when you need help the most. Unfortunately, not all insurance companies play fair.

Some engage in unreasonable delays, lowball offers, or outright denials that go against the terms of your policy. Under Iowa law, these unfair practices may open the door to what’s called a “bad faith claim.” Understanding how these claims work can help you protect your rights and hold your insurer accountable.

What Is an Insurance Bad Faith Claim?

An insurance policy is a contract. You pay premiums, and in return, the insurer agrees to act in good faith when handling claims. That duty includes investigating your claim promptly, evaluating it honestly, and paying valid benefits without unnecessary delay. When an insurer breaks that duty, you may have grounds for a bad faith claim.

A bad faith claim arises when an insurer either:

• Refuses to pay a valid claim without a reasonable basis, or
• Fails to properly investigate or process the claim in good faith.

In Iowa, both first-party and third-party bad faith claims are recognized. First-party claims involve your own insurer. For instance, when your health, homeowner’s, or auto insurance company wrongfully denies coverage. Third-party claims, meanwhile, arise when the insurer fails to protect you in a lawsuit filed by someone else.

Insurance bad faith is more than a business dispute. It’s a breach of trust. Iowa courts take it seriously because insurance companies wield significant power over the financial well-being of their policyholders.

Common Examples of Insurance Bad Faith

Insurance companies sometimes use tactics that seem subtle at first but can have serious financial consequences. Recognizing these tactics can help you understand whether your rights have been violated.

Common examples of bad faith include:

• Unreasonable delays in processing or investigating a claim.
• Denying coverage without explaining the reason or citing the policy language.
• Failing to conduct a proper investigation, such as ignoring medical evidence or eyewitness accounts.
• Offering unreasonably low settlements that don’t reflect the true value of the loss.
• Misrepresenting policy terms or misleading the policyholder about coverage limits.
• Refusing to defend or indemnify the insured in a third-party lawsuit.

Not every disagreement with an insurance company qualifies as bad faith. However, when the insurer’s behavior lacks a reasonable basis or is motivated by profit rather than fairness, Iowa law provides a legal remedy.

The Legal Standard for Bad Faith in Iowa

Under Iowa law, proving bad faith involves meeting a two-part test established by the courts. To succeed, you must show:

1. The insurer had no reasonable basis for denying or delaying your claim, and
2. The insurer knew or should have known that it lacked such a basis.

This standard ensures that insurers cannot hide behind mistakes or good-faith disagreements. If the insurer’s conduct was objectively unreasonable and it acted with knowledge or reckless disregard, that’s bad faith.

For example, if your personal injury claim is supported by clear medical records, eyewitness accounts, and law enforcement reports, yet the insurer refuses to pay or even investigate further, the conduct may be considered unreasonable under Iowa’s standard.

It’s worth noting that the burden of proof is on the claimant, which is why working with an experienced personal injury attorney is critical. An attorney can gather documentation, expert opinions, and communication records to show that the insurer’s actions crossed the line.

Damages You Can Recover in a Bad Faith Case

When an insurance company acts in bad faith, the harm to the policyholder often extends beyond the original loss. You may face financial distress, credit damage, emotional hardship, or even the loss of essential property or healthcare coverage. Iowa courts allow victims of bad faith to seek compensation for both economic and non-economic damages.

Potential recoverable damages may include:

• The full value of the denied claim under the original policy.
• Consequential losses, such as additional expenses caused by the insurer’s delay or denial.
• Emotional distress damages for the stress and anxiety caused by the insurer’s conduct.
• Punitive damages, which punish the insurer for particularly reckless or intentional misconduct.
• Attorney fees and litigation costs when allowed by the court.

The goal is not only to make the policyholder whole again but also to discourage insurance companies from using unfair or deceptive tactics against others.

Why Insurance Companies Act in Bad Faith

Many people are surprised to learn that even major insurers sometimes engage in bad faith practices. These are large corporations with profit motives, and denying or minimizing claims saves them money. The internal culture of some insurance companies even rewards employees for lowering payouts or closing claims quickly.

Common reasons for bad faith behavior include:

• Pressure from upper management to reduce claim costs.
• Inadequate training or supervision of claims adjusters.
• Overreliance on computer algorithms or software to value claims.
• Misinterpretation of policy exclusions or coverage terms.
• Lack of accountability or internal oversight within the insurer.

These factors don’t excuse misconduct, but they help explain why it happens. Bad faith is often systemic, not just the result of one adjuster’s poor judgment. When insurers place profit over policyholders, Iowa law steps in to balance the scales.

How to Protect Yourself Against Insurance Tactics

While you can’t control how an insurance company behaves, you can take steps to protect your claim and strengthen your position if bad faith occurs. Being organized and proactive can prevent the insurer from exploiting gaps or inconsistencies in your documentation.

Consider the following steps:

• Keep detailed records. Save all correspondence, emails, and notes from phone calls with your insurer.
• Request written explanations. Ask for a detailed, written reason for any denial or delay.
• Review your policy carefully. Understand your coverage limits, exclusions, and claim procedures.
• Stay professional and consistent. Avoid emotional exchanges with adjusters and stick to facts.
• Consult a personal injury attorney early. An attorney can spot unfair tactics and step in before the situation escalates.

Insurance companies have legal teams protecting their interests. You deserve the same level of support on your side. The sooner you seek legal guidance, the better your chances of preserving evidence and asserting your rights under Iowa law.

The Role of an Attorney in a Bad Faith Case

Pursuing a bad faith claim is not the same as filing an ordinary insurance claim. These cases involve complex legal theories, procedural rules, and the need to prove intent or reckless disregard. A skilled attorney will evaluate the strength of your case, gather evidence, and build a clear timeline showing how the insurer failed in its duties.

An experienced personal injury attorney can help by:

• Reviewing policy terms and identifying violations.
• Obtaining claim files, internal emails, and adjuster notes through legal discovery.
• Working with experts to evaluate the insurer’s conduct and claim-handling practices.
• Negotiating for fair compensation or litigating in court when necessary.

At Hauptman, O’Brien, Wolf & Lathrop, LLC, our attorneys have extensive experience handling personal injury claims and bad faith litigation. We understand how insurance companies operate, and we know the strategies they use to limit payouts. Our goal is to level the playing field and ensure that every client receives the fair treatment they were promised.

When a Bad Faith Claim May Be Combined with a Personal Injury Case

Bad faith claims often emerge from an underlying personal injury case. For example, after a car accident, your insurer may wrongfully deny medical payments or underpay your settlement despite clear evidence of liability. In these situations, the injured person can pursue both the original personal injury claim and a separate action for bad faith.

Combining these claims requires careful strategy. You must prove both the damages from the accident and the additional harm caused by the insurer’s misconduct. With the right representation, you may be able to recover compensation that extends beyond what the original policy would have paid.

These cases also serve a broader purpose. Holding insurance companies accountable benefits not only the individual policyholder but also the community. It sends a message that cutting corners or manipulating claims will not be tolerated under Iowa law.

Consult With Our Council Bluffs Personal Injury Attorneys Today

If you believe your insurer has treated you unfairly or acted in bad faith, you don’t have to face them alone. The personal injury attorneys at Hauptman, O’Brien, Wolf & Lathrop, LLC represent clients in Iowa via our office in Council Bluffs. We know how to identify unlawful insurance tactics and fight for the full compensation you deserve.

Our law firm brings more than 298 years of combined experience to personal injury and insurance litigation. We approach every case with compassion, diligence, and an unwavering commitment to justice. Contact us today for a free consultation, and let our team protect your rights against powerful insurance companies.