Insurance Defense and Coverage
Bad Faith and Extracontractual
Bad faith is conduct by an insurer that breaches the implied covenant of good faith and fair dealing owed to its policyholder. Typical allegations include unreasonable denial, inadequate investigation, failure to communicate settlement opportunities, and refusal to accept a reasonable within-limits demand.
Claims fall into two categories. First-party bad faith involves the insurer's handling of its own insured's loss. Third-party bad faith involves the insurer's handling of a liability claim brought against its insured, most often a failure to settle.
Alternative Names:
Insurance Bad Faith, Breach of the Duty of Good Faith
Why it Matters?
Bad faith converts a capped exposure into an uncapped one, and it exposes the claim file, reserve information, and internal communications to discovery. In serious injury litigation, plaintiff counsel frequently structure demands specifically to build a bad faith record, which means defense counsel's evaluation letters and communications with the carrier become evidence.
Frequently Confused with
Related terms
Frequently asked questions
What is the difference between first-party and third-party bad faith?
Is a coverage denial automatically bad faith?
What damages are available for bad faith?
