Navigating Insurance Bad Faith Claims Involving Additional Insureds and Defense-Within-Limits Policies

Defense-within-limits policies can pose unsuspecting bad faith liability risks for insurers. Potential landmines include allegations the insurer mismanaged defense costs or erroneously defended an AI thus depleting the insured’s policy limits. Another potential theory includes the claim that the insurer did not pursue settlement before exhausting the policy limits with a vigorous defense.

While the issues of bad faith claims with respect to AIs are one of the pitfalls of defense-within-limits policies, risks involving AIs are present in all types of policies especially in light of the trend of courts expanding the AI duty to defend. Carriers face risks when denying coverage for AIs or failing to fully understand the rights of the AI under the policy, particularly with respect to the insurer’s duty to defend AIs.

Listen as our authoritative panel of insurance attorneys discusses bad faith pitfalls for insurers in investigating and handling claims involving AIs and claims that arise under defense-within-policy-limits insurance policies. The panel will identify ways insurers can mitigate these risks and best practices for policyholders and AIs to identify and evaluate potential bad faith actions.

1. Bad faith risks with defense-within-limits policies
   1. Insurer mismanagement of or inadequate communication regarding defense costs
   2. Improper defense of AI resulting in depleting policy limits
   3. Insurer’s failure to pursue settlement prior to exhausting policy limits
2. Bad faith risks with respect to AIs
   1. Scope of insurer’s duty to defend AIs
   2. Denial of coverage for AI claims
   3. Investigating and handling AI claims

The panel will review these and other key issues:

• Bad faith risks facing insurers under defense-within-policy-limits insurance policies
• Bad faith risks facing insurers when investigating and handling claims involving AIs
• Additional insured duty to defend expansion by courts