Bad Faith Insurance: An Introduction

Because an insurance policy is a contract, any dispute implicating an insurer’s bad faith will involve the meaning of the words in the insurance policy.  This is true no matter the type of bad faith at issue.  Construction and interpretation of an insurance policy come into play in statutory bad-faith cases brought under O.C.G.A. § 33-4-6  as well as in bad-faith cases under the common law.

 

Types Of Bad Faith Insurance

1. Withholding Payment

With respect to statutory bad faith, for example, an insurer may eventually be deemed to have withheld payment of policy proceeds in bad faith because the claim was clearly covered under the plain terms of the insurance policy.

 2. Incorrect Policy

On the other hand, an insurer may be deemed to have not acted in bad faith under the statute even though its interpretation of the policy was later determined to be incorrect, but only if the question of interpretation is objectively a “close question.”

3. Refusal To Settle A Claim

With respect to the common law, a bad-faith claim may have its genesis in the insurer’s refusal to settle a claim or defend a lawsuit it believes not to be covered, leading to a default judgment in excess of policy limits.  Thus, an insured who brings a bad-faith, failure-to-settle claim may, in some instances, be required to show that there is coverage under the insurance contract. Knowledge of the rules of contract construction as applied to insurance policies is obviously necessary, therefore, to correctly analyze and effectively litigate situations involving the potential bad faith of an insurer under O.C.G.A. § 33-4-6 as well as under the common law.