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When does an insurer’s refusal to settle constitute bad faith?

On Behalf of | Jun 24, 2022 | Insurance Law |

In many cases involving personal injury or property damage, an insurer may choose to deal directly with the injured party in trying to negotiate a settlement of the claim. If an insurer chooses this route, the Uniform Claims Settlement Practices Act requires that the insurer “effectuate prompt, fair and equitable settlements of claims in which the liability of the insurer has become reasonably clear. . . .” The insurer must also inform the insured about all reasonable settlement offers and opportunities to settle the claim.

Proving bad faith

The phrase “bad faith” is lawyer short-hand for an insurance company’s failure to exercise good faith and honesty in dealing with a claim against its insured. Common law bad faith is proved by evidence showing that the insurer refused to pay an insured’s claim without any reasonable basis and that the insurer was aware of the lack of a reasonable basis for denying the claim.

In conducting settlement negotiations with an injured party, the insurer cannot deny an offer that would be considered to be “reasonable.” The insurer has the right to conduct a fair and reasonable investigation of the claim, and mere disagreement with the adverse party concerning the number of damages does not constitute bad faith.

However, if the insurer acted deliberately in rejecting a reasonable settlement offer from the adverse party, the insured party can recover any damages resulting from the insurance company’s failure to honor its contractual duties.

In Nevada, insured parties can compel the insurer to accept a settlement demand that exceeds the limits on the policy if the insured is willing to pay the amount by which the settlement demand exceeds the policy limits.

Solid legal advice

Anyone who is the subject of a liability claim from another party must immediately report that claim to its insurer. The insurer will retain an attorney to represent the insured, and that lawyer will, for all practicable purposes, become the lawyer for the insured.





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