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Understanding Differences between First-Party and Third-Party Bad Faith

On Behalf of | Nov 12, 2018 | Firm News |


Insurance is an integral part of the business world, and unfortunately, there are instances where disputes happen between parties and an insurance company. Some of these disputes will give rise to what’s known as a bad faith claim. Bad faith claims in Florida have their roots in both common law and statutory law, and they can take the form of either first-party or third-party claims.

Bad faith actions typically revolve around the carrier not attempting to settle a claim in good faith when it could have and should have done so. In order words, the carrier did not act fairly and honestly toward its insured regarding the policyholder’s best interest. Bad faith claims in Florida are addressed under Florida Statutes section 624.155(1)(b)(1).

First Party Bad Faith Claims

First-party bad faith claims are when the insured brings a claim against his or her own insurer. This is commonly seen with uninsured motorist coverage or property insurance policies. These include cases where the insured presents a claim for uninsured motorist benefits and the insurance company wrongfully denies the claim or takes too long paying the fully covered amount. First party bad faith claims are statutory in nature only, and there is no common-law first-party bad faith remedy available.

Before an insured can bring a first-party action, there has to be a determination that coverage exists, the insurer is liable to its insured, and what the covered damages are.

Third-Party Bad Faith Claims

A third-party bad faith claim can arise from a third-party who asserts a claim against an insured and the insured is exposed to personal liability for damage that exceeds the policy limits or coverage of their policy. In theory, an insured would be liable for any amount owed over and above the coverage they purchased.

However, what happens if an insurance company had the chance to resolve the claim for under or at the policy limits, but they chose not to. Is it right that the insured is now on the hook for additional money out of his or her pocket? If the insured negotiates a settlement that also releases the insured from further liability, then they would not be guilty of third-party bad faith.

Third-party bad faith claims can be based on statute or common law. Under the statutory law, there is something called civil remedy notice which requires the insurer’s violation to be submitted to the Department of Financial Service. This is a necessary step in starting a bad faith action. With a common-law bad faith action, there is no civil remedy notice. Common-law bad faith is not a separate cause of action, it is derivative from the insured’s claim. This means the insurer doesn’t owe a good faith duty to the injured third party directly. An example would be when an insured consents to the excess judgment and the third-party claimant agrees only to collect against the insurer.

Retaining a Florida Bad Faith Insurance Attorney

Bad faith claims can be extremely complex, and often require a lot of discovery. Retaining a Florida insurance coverage attorney who has experience with both first-party and third-party bad faith claims is important. The attorneys at Pincus & Currier LLP have experience in handling a variety of types of insurance coverage disputes, including commercial liability, homeowners’, uninsured motorist, bodily injury, and property and casualty. Contact our office at 561-868-1340 to schedule a consultation.