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Understanding Differences Between First-Party and Third-Party Bad Faith Insurance Claims

When someone is involved in a serious accident that results in severe injury or even death, the at-fault party may not have enough insurance coverage to pay for all the damages. Given that Maryland’s minimum liability coverage is only $30,000 minimum per person/$60,000 minimum per accident, it is understandable how a serious accident could easily exhaust the at-fault party’s limits.

Insurers have a duty to their insureds to properly investigate and resolve all claims as necessary within the insured’s limits. When an insurer breaches their duty, it can open them up to a bad faith claim. However, there are both first-party and third-party bad faith claims, so it is important to know what each one is.

First-Party Bad Faith Claims

Md. Code Ann., Cts. & Jud. Proc. §3-1701 allows for claims against first-party insurers who do not behave in good faith. This only applies to first-party claims under casualty and property insurance policies that are sold, issued, or delivered in Maryland. It applies to actions to determine whether there is even coverage in the first place or to what extent the insured is entitled to recover for a loss covered under the policy.

To determine whether an insurer acted in good faith or not, the court will look at the “totality of the circumstances,” including:

  • The measures or efforts the insurer took to resolve the coverage dispute timely or in a way that would limit any potential for prejudice against the insured;
  • The weight of the legal authority on an issue of coverage, or body of the coverage dispute; and
  • The diligence of the insurer and how thorough was their investigation into the facts that are specifically pertinent to coverage.

While the law may provide for some instances of first-party bad faith, it is not an easy claim to pursue. First-party bad faith claims are extremely complex, and you need to speak with a knowledgeable Maryland personal injury attorney who has experience with how first-party bad faith claims work in the state.

Third-Party Bad Faith Claims

Third-party bad faith claims arise when an insurance company does not use reasonable care in evaluating a claim and settling the third party’s damages within the policy limits to ensure the insured’s personal assets are not at risk. If the injured party obtains a judgment that exceeds the insured’s policy limits, the insured is the one who has the claim for bad faith failure to settle within the limits, and not the injured party. The injured party would need to obtain an assignment of the insured’s bad faith claim in order to proceed. This is usually granted in exchange for not pursuing the insured’s assets directly. In assessing third-party bad faith claims, the court looks a number of factors, including:

  • Failure to properly investigate;
  • Severity of injuries and likelihood that a verdict would exceed policy limits;
  • Insurer not properly evaluating plaintiff’s injuries and disability; or
  • Not informing insured of demand at or near policy limits.

Retaining Maryland Personal Injury Attorney

If you have questions regarding bad faith claims, contact the Law Office of Robert R. Castro at 301-870-1200 to schedule a consultation.

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