In an insurance dispute, the only standards which govern the actions of the policyholder are the terms and conditions contained within the policy. However, an insurer’s conduct is governed by standards set forth in the policy, statutes & regulations, and industry custom & practice. Bad faith is the claim that an insurer failed to deal fairly with its own policyholder. In first-party cases, the dispute is over the policyholder’s own claim: a property, auto, life, health, or disability claim that was denied, delayed, or underpaid. In third-party cases, the insurer is accused of failing to protect its insured against a liability claim, most often by declining a settlement offer within policy limits and leaving the insured exposed to a verdict above them.
Many states also set out claim-handling duties in unfair claims settlement practices statutes and regulations, and those standards are often at the center of the dispute. Related claims arise between insurers themselves, as when an excess carrier sues the primary carrier over a failure to settle, and between policyholders and the agents who placed their coverage. Coverage questions, such as notice under claims-made policies, exclusions, deductibles, and the duty to defend, frequently run alongside the bad-faith claim.
Expert testimony in these matters usually turns on the standard of care: what a reasonable insurer would have done with the same information at the same point in the claim.
Claims against a claims professional other than the insurer, such as a third-party administrator, agency, or defense counsel, are covered under Claims Handling Review.
