In Negotiating and Settling Insurance Bad Faith Cases , insurance expert witness Guy O. Kornblum of GK Consultants, LLC, writes:
Many types of property and casualty policies contain both first and third-party coverage. For example, an auto policy which protects the insured against the risk of property damage to its vehicle, may also provide for medical expense coverage (called medical payments coverage), and normally contains uninsured and underinsured motorist coverage. The latter allows the insured to bring a claim against its own insurer if the insured is the victim of an accident in which the offending driver’s vehicle has no insurance or the applicable liability insurance limits are insufficient to compensate the insured for the injuries suffered in the accident. Unreasonable conduct in the processing or handling of these claims may expose an insurer to a “bad faith” claim.
The focus of a third-party case is on the insurer’s refusal to settle a claim or lawsuit against its insured within the limits of liability of the insurance policy and a judgment in excess of the liability limits results from a trial. As a result, the insured’s personal assets are exposed because of the insurer’s failure to settle within the framework of the liability protection when it was prudent to do so.
The classic breakdown of the first-party insurance bad faith case is represented by a three-tiered analytical framework: 1) breach of the insurance contract; 2) the tort of insurance bad faith (or other tort converting the contract action to a tort claim); and 3) the punitive damage claim. Theoretically, this is a mixture of legal theories and remedies.