Which term refers to the practice of settling claims in a way that is deemed unfair or unethical?

The term that refers to the practice of settling claims in a way that is deemed unfair or unethical is bad faith settlement. This concept is crucial in the insurance industry as it involves an insurer not acting in good faith towards its policyholders. When an insurance company engages in bad faith settlement practices, it may deny, delay, or underpay legitimate claims, which undermines the trust and contractual obligations that exist between the insurer and the insured.

In contexts where policyholders have a reasonable expectation of being compensated for their claims, bad faith settlements can lead to legal actions against the insurance company. These actions may arise when insurers fail to uphold the principles of fairness and honesty that should guide their interactions with customers. Understanding this term is essential for recognizing the ethical responsibilities that insurance companies have in managing claims.