According to the attorneys at Smith Kendall, PLLC, insurance companies have an enormous responsibility towards policyholders following an accident or injury. Sadly, some insurance companies may act in bad faith by denying liability, limiting coverage, or delaying payments and investigations. Fortunately, in the United States there are several laws in place to protect policy holders against the illegal practices of some insurance providers.
While insurance companies often provide first and third party coverage, the category in which one falls under can determine whether or not that person is eligible to sue the insurance provider for bad faith.
In some states, whether or not a person can sue is determined by the policy language. For example, in cases involving liability insurance claims, if a person meets the definition of “insured” as per the terms and conditions of the policy, then that person is a first party claimant who is eligible to bring about a bad faith claim against the insurer. However, due to recent developments, many insurance companies are revising and narrowing their definitions to limit who is considered to be an “insured” policy holder.
While many states allow for both first and third parties to sue, other states have specific laws that limit or outright deny third parties the ability to sue in the event that an insurer acts in bad faith. Experts state that this is due to the fact that in some states, as part of their contractual and fiduciary relationship between the insurer and insured, insurance companies have a higher duty of protection towards their own insured parties than they do to third parties. However, some states allow for a first party beneficiary to assign their rights over to a third party. In these states, if a third party has gained these rights via assignment, then they are eligible to file a bad faith claim against an insurance company.