Bad Faith

An insurer's unreasonable refusal to fulfill its obligations under a policy, including wrongful denial of a valid claim, failure to investigate promptly, or refusal to settle within policy limits when liability is clear. Law firms that experience bad faith handling of malpractice claims may have grounds for a separate cause of action against their carrier, potentially recovering damages beyond the policy limits. Bad faith standards vary by state—some require proof of intentional misconduct while others apply a negligence-based standard. First-party bad faith (insurer vs. its own policyholder) is the most relevant type for law firm malpractice coverage disputes.