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What are the Difference Between First-Party and Third-Party Bad Faith Insurance Claims?

On Behalf of | May 11, 2021 | Firm News

Bad Faith Insurance

Bad faith is equated with dishonest dealings, fraudulent intent, neglecting to deal in a fair manner, or an untrustworthy professional performance. The person or entity acting in bad faith does so with an intent to deceive or defraud another person or entity. One example of this could be when a salesperson knowingly sells a buyer a defective car. Another example is an insurance company that purposely denies a claim without carrying out an appropriate investigation. The reasons for acting in bad faith can be based on other unjust reasons as well.

When insurance companies are involved, claimants can make first-party or third-party bad faith insurance claims. First-party bad faith insurance claims are initiated by policyholders against their insurers. These are based on the provider’s wrongful delay or denial or underestimated payouts for submitted claims. Third-party bad faith insurance claims are a bit more complex.

Third-party claims can arise when a policyholder is subjected to a lawsuit and the insurance provider becomes involved to support the policyholder’s side. Should the provider fail to defend the policyholder’s claim or help them reach a settlement, that policyholder could be personally responsible for paying the excess damages. That policyholder might then claim that their insurance company failed to act in their best interest.

Third-Party Bad Faith Insurance Claims

These claims arise when an insured party is forced to litigate the claim against the insurance company when liability is clear. It could happen when a policyholder is sued by a third party, and the insurer fails to come to a settlement within the policy limits.

In addition, claimants must show that the insurer denied the benefits without a reasonable basis, with a motive of ill will or self-interest. Bad judgment or negligence will not be considered bad faith, there must be clear, convincing evidence. If it is determined that the insurer acted in bad faith, they may rule that the insurer pay punitive damages, interest on the claim amount, and court costs and lawyer fees to the claimant.

How Do Pennsylvania Laws Apply to Bad Faith Insurance Claims?

Many third-party bad faith insurance cases have taken place in Pennsylvania. At one point, it was ruled that insurers are required to give equal importance to their policyholder’s interests as they do to their own. All decisions have to be honest and reasonable. Pennsylvania residents are also protected by the Unfair Trade Practices and Consumer Protection Law and the bad faith insurance statute.

The factors to be considered in bad faith insurance cases include:

  • Strengths and weaknesses of all evidence.
  • History of similar verdicts in the area.
  • Anticipated verdict ranges.
  • The possibility of appeals.

Insurers are not held automatically liable for excess verdicts when policyholders receive adverse outcomes, though. They also are not required to settle when verdicts are likely to exceed their policy limits. However, if an insurer neglects to inform the policyholder about a settlement, that could be proof of bad faith. As a rule of thumb, insurance companies have to act under a reasonable basis to avoid acting in bad faith.

A 2007 Pennsylvania Supreme Court case made it easier for plaintiffs to pursue third-party bad faith insurance claims. Seven years later, a claimant pursued a bad faith claim to a third party and eventually received a settlement of $22 million. It was shown that the insurance company failed to pay an obviously liable claim.

What Should I Do if the Claim is Denied?

. These policies can be long and complicated, but they need to be read down to the last detail, including the dates on the first page.

The policyholder needs to see that the original clam falls within the terms of the contract, and then gather up any pertinent evidence and paperwork. Contacting an insurance company supervisor may help, and the information can be submitted. If they do not budge, it may be possible to appeal to the state’s insurance regulatory agency. As matters progress, it is important to keep records of any receipts, correspondence, photographs, and anything else that might apply to the case. Keeping records of emails, texts, and detailed phone logs are also helpful as well.

If the policyholder wishes to proceed with a bad faith insurance lawsuit, they need to submit a written demand letter to the insurer. It should include the details of the claim as well as the insured’s intent to pursue a claim. The insurance company will have a time limit for their response. If they fail to do so, the policyholder can proceed with filing a suit.

How Do I File a Lawsuit?

Going up against a large insurance company is no easy task, so working with a knowledgeable lawyer is recommended. These cases can be filed in state or federal courts and can include claims for negligence, breach of contract, and fraud. Claimants are often advised to seek damages through their insurance policies.

Even if the provider settles the original claim, the bad faith lawsuit can still be pursued. Plaintiffs in these case can sometimes recover larger damages than the amounts spelled out in their contracts. If the insurance company acted especially badly, the amount could be even higher.

Pittsburgh Bad Faith Insurance Lawyers at AlpernSchubert P.C. Protect Consumers from Bad Faith Insurance Practices

If you feel that your insurance company has treated you unfairly, reach out to the Pittsburgh bad faith insurance lawyers at AlpernSchubert P.C. We understand the complexities of bad faith insurance claims, and we can help you prove your case. For a free consultation, contact us online or call us at 412-765-1888. We are located in Pittsburgh, and we proudly assist clients throughout western Pennsylvania, including Allegheny County, Lawrence County, and Washington County.