In a recent case involving a certified question to the Louisiana Supreme Court involving a bad faith insurance law claim, the Court found that an insurer has a duty of good faith and fair dealing to their customer.
The case involved a claim against an insured. The insurance company received an offer to settle the case for the policy limit. The insurer did not respond, nor did it inform the insured of this request. Later, the insurer attempted to settle for the previous amount and the injured party refused. In a lawsuit, the injured party received a judgment for $150,000 greater than the policy coverage.
The insured sued the insurance company for bad faith, due to their failure to settle the case after the initial inquiry by the injured party.
In the case, the Court found that the duty of good faith to an insured is broader than to a third party. They also interpreted a section of the Louisiana statutes to mean that misrepresentations of "pertinent facts" or coverage issues could constitute bad faith.
The Court's defining of "pertinent facts" to go beyond coverage issues is important for insurers. This means that insurance companies need to be careful when disclosing facts or failing to disclose facts to their customers.
While this could increase the liability of insurers in the state, the Court warned that the statute still must be strictly construed. Nonetheless, when presented with a potential offer for settlement within the policy limits, it does not seem that it is too much of a stretch to see that an insured is likely under virtually any circumstance to view that as a pertinent fact.
Source: insurancejournal.com, "Bad Faith Liability and an Insurer’s Refusal to Settle," Robert Redfearn, Jr., July 22, 2015