Defenses to Bad Faith Insurance Claims

Your choice of attorney to represent your interests during a bad faith insurance dispute could mean the difference between productive negotiations or expensive, ongoing litigation. Please contact our firm today to schedule a consultation with an insurance attorney who can provide a clear explanation of your legal rights and options.

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Defenses to Bad Faith Insurance Claims

There are several defenses that an insurance company that is sued for bad faith may raise. Some of the more common defenses are discussed below. In addition to the defenses set forth below, some states have statutes governing bad faith actions that provide for specific defenses in certain circumstances. If you have questions about the possible defenses available to the insurance company in your bad faith action, talk to an attorney at The Bollinger Law Firm, P.C. in Charlotte, NC.

Statute of limitations:

A statute of limitations is essentially a deadline before which a claim must be filed or it is lost. The length of the applicable statute of limitations depends on whether the state characterizes a bad faith claim as one based in contract or tort. In addition, if the policy includes a limitations period, some states hold that the policy's limitations period applies, even if that time is shorter than the time allowed by statute.

Insured's breach of contract

In a traditional breach of contract action, the plaintiff must prove that he or she performed all obligations under the contract. However, generally, an insured's noncompliance with the contract is not a defense to a bad faith action.

Insured's bad faith

Bad faith by the insured, however, is an affirmative defense. Comparative bad faith is based on comparative fault principles from negligence cases. It seeks to apportion fault and damages depending on the harm that resulted from the bad faith of the insurer and any wrongful conduct or bad faith on the part of the insured. California was the first state to adopt this defense; it might not be available in all jurisdictions.

Lack of coverage or policy defense

In third-party bad faith actions, a lack of coverage can be a defense because if there is no coverage, there generally cannot be bad faith.

Advice of counsel

Some courts have allowed advice of counsel as a defense to a bad faith claim, while others have not permitted this defense. In states that do allow it, it is not a complete defense; rather courts have said that it is only one factor to consider in determining whether the insurer breached its duty to the insured. If the insurer does raise this as a defense, it waives the attorney-client privilege as to communications with lawyers on whose advice it claims to have relied.

Insured's failure to mitigate

Normally, an insured must make an effort to mitigate or minimize his or her damages if there has been a breach of contract. However, a failure to mitigate is not a strong defense in third-party bad faith cases because the insurer has the hard task of proving that the insured was able to avoid the harm he or she suffered.


If an insurance company rejects a settlement offer, the insured may assign his or her bad faith claim to a third party in exchange for the third party's release or agreement not to execute a judgment against any assets of the insured except for the insurance policy. In third-party bad faith cases, some courts have held that a release removes the cause of action against the insurer.

Election of remedies

In bad faith cases, insureds commonly include claims for breach of contract and bad faith in the same complaint. Insurers have tried to argue that by suing for breach of contract the insured has elected his or her remedy and thus waived a tort claim. Courts that have addressed this issue have most often held that a tort claim for bad faith is separate from a breach of contract claim and the plaintiff can proceed with both.

Conformity to industry standards

Generally, it is not permissible for an insurance company to argue that it complied with industry standards and that this should excuse its treatment of the insured.

Other defenses

Other defenses that a defendant insurer may raise include failure to exhaust administrative remedies, waiver, that the claim is subject to compulsory arbitration, preemption, collateral estoppel and res judicata/claim preclusion.

Talk to an insurance lawyer

An attorney at The Bollinger Law Firm, P.C. in Charlotte, NC, who is experienced in bad faith insurance cases, can explain the above defenses in greater detail and help counter the insurer's arguments in your bad faith case.

DISCLAIMER: This site and any information contained herein are intended for informational purposes only and should not be construed as legal advice. Seek competent legal counsel for advice on any legal matter.

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