A more thorough explanation:

The fairly-debatable rule is a test used in some states in the insurance industry. It requires an insurer to have a reasonable basis for denying a claim in order to avoid being held liable for bad faith.

Let's say that a person has car insurance and gets into an accident. They file a claim with their insurance company, but the company denies the claim. If the person believes that the denial was made in bad faith, they can sue the insurance company. However, if the insurance company can show that they had a reasonable basis for denying the claim, they may not be held liable for bad faith.

Another example could be a homeowner's insurance claim. If a person's home is damaged in a storm and they file a claim with their insurance company, the company may deny the claim if they believe that the damage was not caused by the storm. If the homeowner believes that the denial was made in bad faith, they can sue the insurance company. However, if the insurance company can show that they had a reasonable basis for denying the claim, they may not be held liable for bad faith.

These examples illustrate how the fairly-debatable rule works in practice. It ensures that insurance companies have a reasonable basis for denying claims, while also protecting consumers from bad faith practices.