Genuine Dispute Defense to Bad Faith

Almost every lawsuit filed against an insurance company, especially when a claim is denied for fraud, alleges that the insurer acted in bad faith. In the first party context, bad faith claims typically allege that the insurer did not have a reasonable basis to deny coverage and that the insurer engaged in unfair or deceptive conduct in the process of handling the claim and reaching its conclusions regarding coverage. In the third party context, there is typically an allegation that the insurer failed to timely settle a claim in which liability had become reasonably clear. Insurers, with unfounded courage, deny claims based on the recommendations of a claims handler whose experience may be, and usually is, limited.

 

When an insurer is faced with a complex, difficult or fraudulent claim that it believes should be denied it should provide a complete copy of the file materials, those that support what that the insurer believes is a defense and those that support the claim of the insured, to a claims handling expert. The expert should be asked for his or her advice on how to resolve the claim. The expert should not be told the insurer’s position. The insurer should advise the expert only that the insurer desires his or her expert opinion with regard to the resolution of the claim.

 

Case law makes it clear that obtaining the advice of an independent expert and consultant will make it possible to defeat a bad faith claim. Every insurer should understand that expert witnesses and consultants can significantly strengthen an insurer's defenses against claims of bad faith.

 

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