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Addressing Policy Limit Challenges and Avoiding Bad Faith Claims

Insurers facing policy limits demands must act cautiously under even the best of circumstances to avoid threats of bad faith. The situation becomes far more complicated when the insurer receives a policy limits demand and it insures multiple and/or additional insureds.

By Jennifer Kennedy-Coggins | Updated on June 01, 2014

Insurers facing policy limits demands must act cautiously under even the best of circumstances to avoid threats of bad faith. The situation becomes far more complicated when the insurer receives a policy limits demand and it insures multiple and/or additional insureds. Complete chaos can ensue when an insurer has multiple and/or additional insureds, and the claimant’s counsel is only willing to release one insured and/or additional insured for the insurer’s available policy limits.

The insurer in this scenario is stuck between the proverbial rock and a hard place. The insurer can settle on behalf of one insured and face a bad faith claim from the other insured(s), or it can refuse to settle altogether and face a bad faith action from all of its insureds. There is limited case law addressing this issue, but a majority and minority view are presented here.

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