Bad faith legislation: Good for insurance policyholders?


PUBLISHED ON: September 12, 2019

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In order for insurance purchasers to receive the benefit of their insurance policies, bad faith behavior by insurance companies requires that a remedy be available. A July 2019 NU PropertyCasualty360 column by a lobbyist for the insurance industry articulated an insurance industry creed: “Plainly and simply, bad faith legislation is solely for the benefit of the plaintiffs’ attorneys." Is that somewhat alarmist declaration really so?

Skewed incentives require bad faith balancing

When an insurance company violates its duty of good faith and fair dealing, should a policyholder have a remedy for the insurance company’s breach of duty? The answer must be “Yes.” Bad faith legislation, like common law duties, helps policyholders obtain the benefit of the policies they buy. In the absence of such a remedy, insurance companies will breach their obligations with virtual impunity, because breaching their duties will be almost without cost.