Insurance bad faith litigation remains one of the most significant areas of exposure for carriers in the United States. Rooted in the implied covenant of good faith and fair dealing present in every insurance contract, bad faith claims can expose insurers to extra-contractual damages far exceeding policy limits, including consequential damages, punitive damages, and attorneys’ fees. A recent whitepaper by Richard W. Boone Jr., provides a comprehensive roadmap for positioning bad faith claims for summary judgment, offering practical guidance for claims professional and coverage attorneys.

The whitepaper examines both first-party and third-party bad faith theories, analyzes the significant jurisdictional variation in applicable standards, and identifies the defenses best suited for disposition as a matter of law. It emphasizes that summary judgment remains a critical procedural tool for resolving bad faith allegations without the need for trial, but success requires careful planning from the moment a claim is first made. The whitepaper also explores alternative relief strategies that can reduce litigation costs and exposure, often before extensive discovery is required. Some key takeaways include:

1. The Jurisdictional Landscape Matters

Bad faith standards vary dramatically across jurisdictions, and the applicable standard can make or break a case. The particular theory of bad faith adopted by the courts of a given jurisdiction can impact not only the nature and extent of available damages but also the applicable statute of limitations and the types of defenses available to the insurer. 

As an example, in third party claims, New York applies a “gross disregard” standard requiring proof of a deliberate or reckless failure to give equal consideration to the insured's interests. This is a high bar that makes bad faith claims extraordinarily difficult for policyholders to establish. With respect to first-party bad faith claims, New York law is particularly favorable to insurers, as it appears bad faith damages in all claims except those concerning business interruption policies are limited to policy limits. California, by contrast, imposes a “duty to accept reasonable settlements” in third party claims and applies what is, in practice, closer to a negligence standard, making it considerably easier for policyholders to prevail. However, California applies the “genuine dispute” doctrine as a limitation on insurer liability in first-party cases, which is a higher bar.

Thus, the same claims-handling conduct that yields summary judgment in one state—or for one line of business—could potentially result in significant extra-contractual liability in another. This underscores the importance of tailoring the defense strategy to the specific legal framework that applies.

2. Preparation Begins at Claim Inception

The groundwork for a successful summary judgment motion in a bad faith action must be laid well before litigation commences. It begins at the inception of the claim and requires that claims adjusters maintain thorough documentation, conduct prompt and adequate investigations, communicate clearly with insureds, and ensure that coverage determinations are well-reasoned and supported by the policy language and applicable law. These practices not only reduce the likelihood of a bad faith allegation but also build the evidentiary foundation needed to prevail at the summary judgment stage.

Because bad faith standards vary significantly from one jurisdiction to another, claims adjusters must also be knowledgeable about the law of the jurisdiction whose law governs the claim and must document compliance with the applicable standards from the outset. This includes not only in formal correspondence, like coverage letters, but also in the claim notes and any other correspondence with the insured, no matter how informal. Where a claim presents a novel or difficult question, this may also mean involving coverage counsel from the very beginning. 

3. Control the Scope of Discovery

Limiting the scope of discovery to the single claim at issue is important because policyholder counsel will often seek to establish a broader pattern of misconduct to support claims for punitive damages and attorney’s fees. In this regard, policyholder lawyers will often seek discovery regarding similar claims and how the insurer treated them, along with voluminous document requests seeking not just the claim file and underwriting file but also company policies, claims manuals, and other training materials. Counsel may need to pursue motion practice to preserve a reasonable discovery scope.

Additionally, given the potentially broad scope of discovery, both outside counsel and the claims department must quickly identify all key decision-makers and documents that may be the subject of discovery. Prompt collection of the claims file, underwriting file, and custodian materials, including copies of hard drives, shared drives, and full email files for all relevant custodians is essential and may require the engagement of outside e-discovery vendors. This is true even if counsel is successful in limiting discovery to the at-issue claim, as the scope of discovery permitted on that claim is typically still very broad.

4. Choose the Right Defenses

The whitepaper explores the defenses best suited for summary judgment, including lack of coverage, a reasonable legal basis for the coverage determination, and reliance on advice of counsel, while cautioning that more fact-dependent defenses are more likely to survive a summary judgment motion and proceed to trial. 

With respect to coverage-based defenses, there generally can be no bad faith if the insured’s claim is not covered by the policy in the first place, even if the insurer’s handling of the claim was questionable. Similarly, whether an insurer’s coverage determination is at least “fairly debatable” can often be determined as a matter of law, particularly if there is favorable case law discussing the particular policy provision at issue. In those rare instances when carriers invoke the advice of counsel defense, the validity thereof can often be decided as a matter of law on summary judgment.

Other defenses are more inherently fact dependent and, therefore, more likely to require a trial. Whether something is a common industry practice, and therefore not bad faith, is likely to be the subject of expert testimony with each side’s expert taking the opposing view. In duty to settle cases, whether a demand within policy limits was reasonable under the circumstances likely presents a fact question. If the insured violated the terms of the insurance contract, the insurer may have grounds to deny coverage and argue they were not acting in bad faith, but these types of claims almost always present questions of fact for the jury.

5. Consider All Available Tools

Summary judgment is not the only path to a favorable resolution. Early motions to dismiss, bifurcation of coverage and bad faith issues, and private mediation can each reduce litigation costs and exposure, often before extensive discovery is required. Given that trials in coverage cases are relatively rare—and that rulings unfavorable to the insurer along the way tend to increase settlement pressure—a multi-pronged strategy is essential.

A motion to dismiss or for judgment on the pleadings seeks adjudication of coverage issues at the outset of the litigation, as a matter of law, generally based on matters determinable solely from the face of the complaint and the policy. Additionally, under the law of most states, an insurer is not liable for bad faith unless the policy does, in fact, provide coverage for the claim and an insurer may, therefore, attempt to bifurcate the coverage issues and bad faith issues both for the purposes of discovery and trial. Private mediation is also common in coverage cases and is an effective tool for avoiding the costs of discovery, which can be extensive. 

Pursuing these strategies before the case progresses to summary judgment can potentially save significant costs for the insurer and greatly reduce the uncertainties inherent in the litigation process. Both are particularly important in a bad faith case, where the litigation costs are often significant and potential damages can far exceed the policy limits.

The bottom line for carriers and counsel alike is that defending bad faith claims effectively is not a reactive exercise. It requires jurisdictional awareness, disciplined claims handling, strategic discovery management, and early identification of the defenses most likely to succeed as a matter of law. The full whitepaper explores these issues more fully and offers practical guidance on discovery control, dispositive motion strategy, and alternative relief strategies that every claims professional and coverage attorney should have at hand.

Learn more. Download Defending Against Insurance Bad Faith Claims: Strategies for Summary Judgment in Bad Faith Actions