How much do you know about insurance bad faith? – II

In our post earlier this week, we began providing some basic background information on insurance bad faith, a very important legal topic with which people might not be entirely familiar. Specifically, we started discussing how an insurance policy is viewed as a contract in the eyes of the law and, as such, insurance companies owe policyholders the common law duties to both defend and indemnify.

In today’s post we’ll continue this discussion, taking a closer look at first- and third-party claims.

What is a first-party bad faith claim?

A first-party bad faith claim is brought by an insured against their own insurance company and alleges that it failed to settle their own claim in good faith, meaning honestly and fairly. This could include accusations of wrongfully denying coverage, delaying payment without justification or underpaying a loss.

By way of example, consider someone who was injured in a car accident caused by an uninsured motorist, but is unable to arrive at a settlement with their insurance company over losses sustained in the crash.

What is a third-party bad faith claim?

A third-party bad faith claim is brought by an insured against their own insurance company, and alleges that it failed to settle a claim involving a third party in good faith and, by doing so, exposed the insured to liability in excess of their coverage.

Can these claims be brought as both a common law and statutory claim?

While the courts here in Florida have long recognized the right of an insured to bring third-party bad faith claims under the common law, this was not the case for first-party bad faith claims.

However, both first-party bad faith and third-party bad faith claims can be brought under state law (i.e., as a statutory claim), which is arguably the more common avenue through which to seek legal relief.

We will continue to examine this topic in future posts.

Please consider speaking with an experienced legal professional if you have questions or concerns relating to insurance bad faith.