New Mexico Bad Faith

With the introduction of the automobile came a marked increase in complaints and tension between insureds and their insurance companies. As a result, a significant development in insurance law is that insurers may be held liable in tort for bad faith performance of their duties to insureds. The law of bad faith contemplates that a special relationship exists between insurance companies and their insureds. Recognizing the unique peculiarities of the insurance environment, courts have fashioned the tort of bad faith as a way of regulating the insurer-insured relationship. The underlying premise of the law of bad faith is that insurers owe their insureds a duty of good faith and fair dealing. Consequently, an insurer who refuses to deal fairly with its insured, or fails to conduct its affairs in good faith may be subject to compensatory and punitive damages upon a finding of bad faith. Bad faith insurance actions arise in two contexts: 1) that of third-party claims, in which the insured is seeking defense and indemnification from liability to a third party, and 2) first-party claims, in which the insured is seeking indemnification from the insurer for a loss suffered by the insured personally. Although the law of bad faith has received wide recognition and acceptance, the term bad faith lacks a single, coherent definition, meaning different things in different contexts. The purpose of this paper is to put the term bad faith into context by explaining the development and application of the law of bad faith in New Mexico