The concept of bad faith arises in two contexts: (1) first-party bad faith and (2) third-party bad faith. The concept of bad faith arises out of contract (i.e. a relationship created by an agreement between the parties). Consequently, a first party bad faith claim is really the only bad faith claim that exists (directly) for a claimant. Thus, a first party bad faith claim is really the only true bad faith claim that a claimant may have. To understand how it affects a personal injury case, one must first understand the difference between the two.
A first party bad faith occurs when a claimant is treated unfairly by the claimant’s own insurance company. If a claimant makes a claim with his or her own insurance company which is denied for a nefarious reason, that claimant may have a claim of bad faith against his own insurance company. This claim arises out of the relationship that exists between a claimant and their own insurance company.
The claimant pays his or her insurer for protection against third parties, so the relationship is unique in that the insurer is charged with a duty to protect its insured (the claimant). Thus, if a person is robbed or sued by a third party, the insurer is tasked with investigating the claim and ensuring that its insured is sufficiently protected against the loss. If an insurer puts its insured at risk for its own financial gain or opportunity, a bad faith claim may be made against the insurer.
This duty does not require the insurance company to pay claims that it should not have to pay or pay claims for which it has a reasonable defense. However, if there is evidence that the insurance company is taking unreasonable positions that that cause harm to its insured, then its insured may have a bad faith claim for the insurance companies conduct- even to the point that an insured may obtain punitive damages against its insurance (provided the behavior of the insurance company is bad enough to warrant it).
Personal injury law can be complex, and it's extremely important to ensure that you have the right Phoenix, Arizona personal injury law firm representing you after your accident.