Insurance Bad Faith: Breaching the Duty to Defend

The Insurance Company’s Duty to Defend

Unlike insurance Third-party liability coverage kicks in when someone sues you for money. The maximum dollar amount the insurance company is responsible for covering is ordinarily defined by the policy (policy’s “limits”).

A typical liability insurance policy will cover bodily injury or property damage resulting from an occurrence for which the policyholder is liable to pay damages. Policies typically define “occurrence” to mean an accident. This promise to reimburse the policyholder for damages they’re shown to be liable for creates a contractual “duty to indemnify” the policyholder in a third-party lawsuit.

Liability coverage provisions also include a promise to defend the policyholder against a lawsuit for third-party injuries or property damage covered under the policy. Thus, a standard liability insurance policy also creates a contractual “duty to defend” its policyholder against third-party claims for covered damages.

An insurance company’s duty to defend usually entails hiring an attorney for the policyholder and paying for all reasonable attorney fees incurred to defend the policyholder against the third-party claimant’s lawsuit. The insurance company selects the attorney who will defend the policyholder in the lawsuit and funds their defense.

When the facts alleged in a lawsuit arguably bring an insurance claim within the coverage of the policy, an insurer has a duty to defend the insured even if the allegations turn out to be false. Simply put, the insurance company still has to provide a defense if the false allegations are potentially covered by the policy.

The insurance company’s duty to defend ends when the third-party claimant’s lawsuit ends, whether from settlement, jury verdict, or dismissal. Additionally, the duty to defend terminates when the insurance company depletes the policyholder’s full policy limits. The insurance company owes no duty to defend the policyholder against claims that are not covered under the policy.

Breaching the Duty to Defend

When an insurance company fails to defend its policy hold, it is considered the same as denying coverage. As a result, an insurance company that wrongfully refuses to defend its insured can be held liable for the cost of the defense and any damages that arise from its breach of their duty to defend. However, if an insurance company wishes to avoid a bad faith claim, but doubts that the allegations fall under the scope of the policy’s coverage, it can agree to defend the policyholder under a reservation of rights.

Under Georgia law, an insurance company is liable for bad faith if:

  • The claim is covered by the policy
  • The insured demanded payment from the insured at least 60 days filing a bad faith claim; and
  • The insurance company’s breach was motivated by bad faith.

Bad faith exists if the insurer had no good cause or reason for denying or delaying payment per the terms of the policy and the facts surrounding the claim. The policyholder has the burden of showing that the insurance company’s failure to defend was made in bad faith.

Marietta Insurance Bad Faith Attorneys

Having difficulties with an insurance claim? You need the advice of an insurance bad faith attorney in Marietta. At Busch, Reed, Jones & Leeper, P.C., we have years of experience handing insurance bad faith litigation. Insurance law can be a difficult field of law to navigate. Thankfully, our attorneys have the training and sophisticated knowledge to help make sure your insurance bad faith claim is handled properly and professionally.

Contact Busch, Reed, Jones & Leeper, P.C. at (770) 629-0154 to explore your options today.