Insurer Bad Faith Setup Defense and Reserve Bad Faith Claims: Insurer vs. Policyholder Perspectives

In defending bad faith claims, insurers are increasingly using various legal defenses to ensure that the court considers insured's conduct when evaluating the conduct of the insurer.  Allegations generally include failure to cooperate, failure to give proper notice of a claim, or fraud and misrepresentation.

A recent Pennsylvania federal court allowed an insurer to proceed with a "bad faith set-up" defense, giving ammunition to insurers alleging claimants employed bad faith set-up tactics solely to obtain punitive damages.  At issue was an alleged unreasonably quick settlement deadline and delay tactics by the claimant.

Insurer "reverse bad faith" allegations that the plaintiff breached the covenant of good faith and fair dealing have had limited success by courts.  However, there are some reported cases recognizing the claim, at least in dicta, and insurers continue to pursue the claims.