Preventing Bad Faith Train Wrecks

Much of the law surrounding extra-contractual or bad faith liability for insurance carriers centers on whether the insurer has properly discharged its duties to its insured early in a claim, such as by agreeing to defend the insured in a newly filed lawsuit.

A scenario that plays out much less frequently, however, is when the carrier is defending the insured, a trial date is approaching, and the remaining claims against the insured in the liability action include some that would be covered under the operative policy, and some that would not.

When the carrier communicates to the insured that some portion of a potential adverse verdict may not be covered, the insured may respond with surprise, hostility, or even threats of a bad faith claim against the carrier.

Through early identification and regular communication, claims professionals may be able to minimize the risk or severity of this kind of confrontation.