Section 9.42 Bad Faith Claims

• Library: Insurance Practice 2015

Both insureds and insurers have a duty to exercise good faith in their dealings with one another under the insurance contract. See Hyatt Corp. v. Occidental Fire & Cas. Co. of N.C., 801 S.W.2d 382 (Mo. App. W.D. 1990).

Insurers owe a duty to give good faith consideration to settlement proposals. See Gribaldo, Jacobs, Jones & Assocs. v. Agrippina Versicherunges A.G., 476 P.2d 406 (Cal. banc 1970); Hyatt Corp., 801 S.W.2d at 388–89. This duty is independent of any duty to defend. Id. at 389; Ganaway v. Shelter Mut. Ins. Co., 795 S.W.2d 554, 556 (Mo. App. S.D. 1990). The duty of good faith becomes a primary consideration when the insurer is presented with a settlement offer within the insured’s policy limits. The insurer, at the very least, must give “equal consideration” to the interests of the insured in responding to any settlement proposal within policy limits. See Ariz. Prop. & Cas. Ins. Guar. Fund v. Helme, 735 P.2d 451 (Ariz. banc 1987).

Bad faith liability may also be sought for other alleged breaches by an insurer. Courts have rejected arguments that the failure to advance defense costs when there is no duty to defend should result in bad faith liability. E.g., Little v. MGIC Indem. Corp., 649 F. Supp. 1460, 1469 (W.D. Pa. 1986), aff’d, 836 F.2d 789 (3^rd Cir. 1987); Gary v. Am. Cas. Co. of Reading, Pa., 753 F. Supp. 1547, 1558 (W.D. Okla. 1990). But when there is a duty...