Failure to Settle a Reasonable Claim as a Basis for Insurance Company Liability

One type of insurance bad faith is third-party bad faith.  That occurs when your insurance company fails to protect you from legal claims asserted by someone else (the “third-party”) and exposes you to a lawsuit.  Insurance companies have a duty to consider reasonable settlement of claims.  If your insurance company fails to do so, the result could be a lawsuit against you that leads to a judgment greater than your insurance policy limits, which means that you will have to pay some of it personally.  That of course can have devastating financial consequences for you.  It can also result in liens against your property and other collection actions against you, which can cause long-term damage to your credit rating. 

You may have legal rights against your insurer if this happens because the insurance company fails to consider a reasonable settlement of the claims against you.  Your claim can include the extra amount of the judgment over your policy limits and punitive damages.


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