Insurance Defense and Coverage
Bad Faith and Extracontractual
First-party bad faith arises where the insurer unreasonably denies, delays, or underpays a claim the policyholder made for its own loss, such as property damage, uninsured motorist benefits, or disability payments.
It is distinguished from third-party bad faith, which concerns the defense and settlement of liability claims against the insured.
Alternative Names:
First Party Bad Faith, Direct Bad Faith
Why it Matters?
The absence of a competing claimant changes the analysis from third-party bad faith, since the dispute is directly between insurer and insured over money owed under the contract. Liability turns on whether the denial had a reasonable basis, and the claim file is the evidence. Investigations that gathered only facts supporting denial, or that reached a conclusion before obtaining available information, are the recurring pattern in adverse verdicts.
Frequently Confused with
Related terms
Frequently asked questions
What distinguishes first-party from third-party bad faith?
Is an incorrect denial automatically bad faith?
