Table of Contents

Research Handbook on International Insurance Law and Regulation

Research Handbook on International Insurance Law and Regulation

Research Handbooks in Financial Law series

Edited by Julian Burling and Kevin Lazarus

Given its economic importance, insurance is a field that has been underserved as an area of academic study. This detailed book provides much needed coverage of insurance law and regulation in its international context.

Chapter 6: Claims: An Overview of the US Tort of ‘Bad Faith’ – A Common Law Approach to Regulating Insurer Claims Handling and Settlements

Suzanne Midlige, Robert Re and William Hoffman

Subjects: economics and finance, money and banking, law - academic, commercial law, finance and banking law, insurance law, law -professional, commercial law, finance and banking law


Suzanne Midlige, Robert Re and William Hoffman 1. INTRODUCTION In the United States, ‘bad faith’ claims frequently arise not only in disputes between insureds and insurers but also in disputes between insurers. Bad faith claims are significant to insurers because they potentially expose them to ‘extracontractual’ types of damages and even punitive damages. That is, a finding of bad faith potentially exposes an insurer to liability beyond the policy limits originally bargained for in the insurance contract. This chapter provides an overview of the bad faith cause of action in the US, beginning with its origins in the early twentieth century, and a comparison of the bad faith cause of action to concepts such as uberrima fides, or utmost good faith, familiar to English and European markets. Also discussed are the contexts in which bad faith claims may arise, the damages available to a successful bad faith claimant and the various standards that US courts may apply in deciding a bad faith claim. In particular, this chapter discusses, and provides examples of, some of the most common categories of bad faith, including bad faith claims that arise when an insurer wrongfully refuses to defend an insured or wrongfully refuses to settle a covered claim within policy limits. The assertion of bad faith claims by insureds is on the rise in the US. Not surprisingly, bad faith came of age in the 1960s, 1970s and 1980s, at a time when other types of tort litigation – for example, environmental, products liability...

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