Third-party bad faith concerns the insurer's handling of claims brought against its policyholder. The central duty is the duty to settle: when a reasonable opportunity exists to resolve a claim within limits, the insurer must give the insured's interests at least equal consideration to its own.
Liability is typically measured by the amount of the judgment exceeding the policy limits, and in many states the insured can assign the claim to the plaintiff as part of a settlement.
Alternative Names:
Failure to Settle, Excess Liability Bad Faith
Why it Matters?
This is the exposure that makes time-limited demands so consequential. A carrier that misses a response deadline, evaluates late, or fails to obtain necessary information can face liability for a verdict many multiples of its limits. Defense counsel carry real responsibility here, because their evaluation and their communication of exposure form the record on which reasonableness is judged.
Frequently Confused with
Related terms
Frequently asked questions
What triggers the duty to settle?
Can the plaintiff end up owning the bad faith claim?
