Also known as: bad faith insurance · insurer bad faith · bad faith · insurance bad-faith claim
Written by attorneys · grounded in primary & secondary sources — see below
An insurer's unreasonable refusal to defend or settle a claim under a policy. This conduct gives rise to tort liability beyond ordinary contract damages and allows recovery of consequential losses including emotional distress and punitive damages.
Isabella Ingram sued her insurer in state court for bad faith denial of a claim. More than a year after filing, the insurer discovered diversity and sought removal. The court denied the petition because Isabella had not acted in bad faith to block removal.
Ike Ingram's insurer lost the original policy during a bad faith coverage dispute. The court admitted secondary evidence of the policy terms because the loss occurred without bad faith by Ike.
Integrity Partners threatened civil suit against its insured to force a low settlement in a first-party claim. The court found the threat constituted bad faith and refused to enforce the resulting agreement.
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An insurer serving as trustee under a disability policy attempted to enforce an exculpatory clause after denying benefits in bad faith. The court held the clause unenforceable because the denial involved reckless indifference to the beneficiary.
A broker produced a ready buyer for an insurer's property but the insurer refused to close in bad faith to avoid paying the commission. The court awarded the commission anyway under the ready-willing-and-able rule.
A limited partnership agreement attempted to shield an insurer partner from liability for bad faith claim handling. The court invalidated the clause because it purported to exonerate knowing violations of law.
A successful bad faith claimant may recover policy benefits plus consequential damages including emotional distress and, where the insurer's conduct is sufficiently reprehensible, punitive damages subject to due process limits.
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Third-party bad faith arises when an insurer fails to defend or settle a claim brought against the insured by a third party. First-party bad faith arises when the insurer refuses to pay benefits directly to its own insured.
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Yes. An insurer's unreasonable refusal to defend a covered claim against the insured constitutes bad faith and exposes the insurer to tort liability beyond contract damages.
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The claimant must show by clear and convincing evidence that the insurer's conduct was reprehensible. Courts then apply due process factors including the degree of reprehensibility and the ratio of punitive to compensatory damages.
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…In order to escape the rule articulated in the cases cited in the next paragraph of this opinion that, absent harassment and bad faith, a defendant in a pending state criminal case cannot affirmatively challenge in federal court the statutes under which the State is prosecuting him, Dr. Hallford seeks to distinguish his…