Procedural Bad Faith Claims Against Insurers: Understanding and Avoiding the Risks; Defenses; Evidentiary Issues

An insurer may be accused of engaging in procedural bad faith based on claims that its coverage decision was unreasonable, whether or not its ultimate conclusion was correct, and the insurer did not deny the policyholder any covered benefits. However, the "no harm-no foul" rule may not necessarily be a defense against a tort claim alleging violation of the duty to act in good faith.

The factual predicates for procedural bad faith vary but include alleged oppressive and intimidating claim practices, superficial investigation, failure to consider all available coverage and losses, providing inaccurate information, and delayed communications. States differ on whether a claim can be grounded in conduct before a lawsuit is filed or decided and whether conduct during litigation is actionable. If a party alleges counsel's acts during litigation support bad faith, counsel's files and work product may be at risk.

Once claims of procedural bad faith are asserted in a lawsuit, the dynamics between policyholder and insurer get more complicated. Procedural bad faith claims can confuse the distinction between claims adjustment activities and litigation activities, jeopardizing privilege. Nonetheless, insurers can reduce the risk of procedural bad faith allegations and deftly manage them.

Listen as this panel discusses this increasingly encountered claim from both first-party and third-party matters.