Third Party Bad Faith Actions

Insurance carriers are frequently faced with the demand for policy limits in settlement of a third-party claimant’s lawsuit. The decision by the carrier to try such a lawsuit, assuming the carrier has an absolute right under the insurance policy to defend or settle that particular third-party claim, carries a risk of a verdict in excess of the insured’s liability limits. This presents the insurance carrier with a dilemma. Even when liability is tenuous and the insured claims to be legally blameless, the likelihood of a verdict — and one that will exceed the insured’s limit of liability under the policy — is the wild card. In most states, “third-party bad faith” is reserved for lawsuits against the insured that are tried to verdict.