Common-Sense Construction of Unfair Claims Settlement Statutes: Restoring the Good Faith in Bad Faith

This Article proposes to balance the scale by providing principles for the reasonable construction of bad-faith and unfair claims settlement practices in statutes applicable to insurance. Part I examines the history and development of bad-faith law, and discusses the common structure of statutes giving rise to badfaith settlement claims. Part II presents general principles courts may apply to resolve an action alleging bad faith, and specific principles courts may apply to address common issues with many states’ statutes. Part III then evaluates the public policy involved in applying such principles to first-party claims where the insured suffers an injury and seeks compensation directly from the insurance company, or, where they are permitted, third-party claims where the insured harms a person not party to the insurance contract and the harmed person makes a claim against the insured who is then defended by the insurer. This Article concludes that the public interest is most effectively and efficiently served by applying more responsible construction of bad-faith laws and by returning to the foundational precepts behind these laws. It further reasons that while there is, no doubt, a substantial public interest in ensuring that insurers “play nicely” and act in good faith, this interest should not always be enforced through litigation and should never supersede basic fairness and justice